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Furnmart profit grows despite difficult trading environment

Southern African Furniture & household retail Group headquartered in Gaborone and listed on the Botswana Stock Exchange (BSE), Furnmart Limited has reported impressive annual financial year result despite a challenging trading environment.

The Group registered a whopping 35.2 percent jump in profits after tax. According to the financial report for the period ended 31st July the group revenue lowered slightly lower to P1.17 billion compared to the previous year, a slightly just above 1 % fall. “The closure of the Zambian operations in particular contributed to the decline,” reads the report.  Furnmart says excluding the Zambian discontinued operations, revenue increased compared to 2016 trading year.

“The somewhat difficult trading environment was brought about by low economic growth, increased competition, and the drought and high levels of consumer debt in the region,” observed the Group Chairman in the financial report. The BSE listed furniture retail outlet recorded  lower  gross profit margins this trading period,  a performance which is  also mainly attributed to the closing down of  the Zambian operations and a very competitive, albeit subdued, trading environment elsewhere. 

Group operating profit registered amounted to over P120 million pula which is P18.9 million more than the previous performance indicating an 18.6% growth compared to the corresponding period. “This was caused, in the main, by lower debtors’ costs and an exchange gain (prior year exchange loss), partially offset by lower sales, lower gross profit margins and higher operating expenses.” states the report.

The report further indicates that total debtors’ costs  have significantly fell during the 2017 trading period predominately due to an improvement in collections and an improvement in the quality of the book. “Total impairment provision on the debtor’s book remains at an adequate level.”The Pula weakened steadily against the Rand during the financial year. As a result, the Group realized an exchange gain of P10.6 million compared to an exchange loss of P16.9m in the prior year. Subsequent to year-end, the Pula however, has strengthened again.

The Group did not incur full-year expenses in respect of the discontinued operations, as these business units ceased trading prior to year-end. However, some once-off severance packages and reinstatement costs were paid during this period. Cost saving initiatives across the Group has contributed to the relatively low growth in the expense base. In the end operating expenses were 4.9% higher than the prior year. As at 31st July 2017 the Furnmart Group had a strong balance sheet with low levels of gearing. 

“The Group’s balance sheet provides a very strong platform from which to grow. During the period under review the Group was able to generate strong cash flows,” reads the report. Furnmart management reports that the process of ceasing operations in Zambia which began in November has been completed and all assets except the debtor’s book realized.

In this trading period under review which ended 31st July the Furnmart Group which now only operates in South Africa , Botswana , Namibia opened 4 more new stores  which makes a total of 120 stores in these three countries. The company observes that the discontinuation of Zambian operations will boost the group‘s financial performance in the coming trading period as the former was bleeding company cash flows without significant returns.

“Management’s focus will remain on the respective business models and specifically on sales growth, gross margin enhancement, expense control, productivity and debtor’s management” states the report. However there are other non performing stores as per the company satisfactory expectations but the outlets will be subjected to a turn-around strategy.

The company also looks to expand their foot print in the South African market next year, “The Group’s businesses in our chosen markets and territories are well positioned to take advantage of the inevitable improvement in market conditions. Our focused management teams will continue to seek growth opportunities in the region.”

In this trading period gross interim dividend of 1.30 thebe per share was paid to the shareholders who were registered as at 16 May 2017. A gross final dividend of 2.25 thebe per share has been proposed to be paid to the shareholders registered in the books of the company as at 17 November 2017.

Furnmart Limited retails domestic furniture and electrical appliances through its network of stores in Botswana, Namibia and South Africa. The merchandise mix at mass-market Furnmart stores is aimed at the middle to lower income market, thus covering the majority of the population. The Group’s HomeCorp super stores, located in Gaborone, Windhoek, Boksburg, Swakopmund and Kempton Park are aimed at the middle to higher income market. Furnmart formerly known as Furniture mart listed on the BSE in 1998.

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P230 million Phikwe revival project kicks off

19th October 2020
industrial hub

Marcian Concepts have been contracted by Selibe Phikwe Economic Unit (SPEDU) in a P230 million project to raise the town from its ghost status.  The project is in the design and building phase of building an industrial hub for Phikwe; putting together an infrastructure in Bolelanoto and Senwelo industrial sites.

This project comes as a life-raft for Selibe Phikwe, a town which was turned into a ghost town when the area’s economic mainstay, BCL mine, closed four years ago.  In that catastrophe, 5000 people lost their livelihoods as the town’s life sunk into a gloomy horizon. Businesses were closed and some migrated to better places as industrial places and malls became almost empty.

However, SPEDU has now started plans to breathe life into the town. Information reaching this publication is that Marcian Concepts is now on the ground at Bolelanoto and Senwelo and works have commenced.  Marcian as a contractor already promises to hire Phikwe locals only, even subcontract only companies from the area as a way to empower the place’s economy.

The procurement method for the tender is Open Domestic bidding which means Joint Ventures with foreign companies is not allowed. According to Marcian Concepts General Manager, Andre Strydom, in an interview with this publication, the project will come with 150 to 200 jobs. The project is expected to take 15 months at a tune of P230 531 402. 76. Marcian will put together construction of roadworks, storm-water drains, water reticulation, street lighting and telecommunication infrastructure. This tender was flouted last year August, but was awarded in June this year. This project is seen as the beginning of Phikwe’s revival and investors will be targeted to the area after the town has worn the ghost city status for almost half a decade.

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IMF projects deeper recession for 2020, slow recovery for 2021

19th October 2020

The International Monetary Fund (IMF) has slashed its outlook the world economy projecting a significantly deeper recession and slower recovery than it anticipated just two months ago.

On Wednesday when delivering its World Economic Outlook report titled “A long difficult Ascent” the Washington Based global lender said it now expects global gross domestic product to shrink 4.9% this year, more than the 3% predicted in April.  For 2021, IMF experts have projected growth of 5.4%, down from 5.8%. “We are projecting a somewhat less severe though still deep recession in 2020, relative to our June forecast,” said Gita Gopinath Economic Counsellor and Director of Research.

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Botswana partly closed economy a further blow of 4.2 fall in revenue

19th October 2020

The struggle of humanity is now how to dribble past the ‘Great Pandemic’ in order to salvage a lean economic score. Botswana is already working on dwindling fiscal accounts, budget deficit, threatened foreign reserves and the GDP data that is screaming recession.

Latest data by think tank and renowned rating agency, Moody’s Investor Service, is that Botswana’s fiscal status is on the red and it is mostly because of its mineral-dependency garment and tourism-related taxation. Botswana decided to close borders as one of the containment measures of Covid-19; trade and travellers have been locked out of the country. Moody’s also acknowledges that closing borders by countries like Botswana results in the collapse of tourism which will also indirectly weigh on revenue through lower import duties, VAT receipts and other taxes.

Latest economic data shows that Gross Domestic Product (GDP) for the second quarter of 2020 with a decrease of 27 percent. One of the factors that led to contraction of the local economy is the suspension of air travel occasioned by COVID-19 containment measures impacted on the number of tourists entering through the country’s borders and hence affecting the output of the hotels and restaurants industry. This will also be weighed down by, according to Moody’s, emerging markets which will see government losing average revenue worth 2.1 percentage points (pps) of GDP in 2020, exceeding the 1.0 pps loss in advanced economies (AEs).

“Fiscal revenue in emerging markets is particularly vulnerable to this current crisis because of concentrated revenue structures and less sophisticated tax administrations than those in AEs. Oil exporters will see the largest falls but revenue volatility is a common feature of their credit profiles historically,” says Moody’s. The domino effects of containment measures could be seen cracking all sectors of the local economy as taxes from outside were locked out by the closure of borders hence dwindling tax revenue.

Moody’s has placed Botswana among oil importers, small, tourism-reliant economies which will see the largest fall in revenue. Botswana is in the top 10 of that pecking order where Moody’s pointed out recently that other resource-rich countries like Botswana (A2 negative) will also face a large drop in fiscal revenue.

This situation of countries’ revenue on the red is going to stay stubborn for a long run. Moody’s predicts that the spending pressures faced by governments across the globe are unlikely to ease in the short term, particularly because this crisis has emphasized the social role governments perform in areas like healthcare and labour markets.

For countries like Botswana, these spending pressures are generally exacerbated by a range of other factors like a higher interest burden, infrastructure deficiencies, weaker broader public sector, higher subsidies, lower incomes and more precarious employment. As a result, most of the burden for any fiscal consolidation is likely to fall on the revenue side, says Moody’s.

Moody’s then moves to the revenue spin of taxation. The rating agency looked at the likelihood and probability of sovereigns to raise up revenue by increasing tax to offset what was lost in mineral revenue and tourism-related tax revenue. Moody’s said the capacity to raise tax revenue distinguishes governments from other debt issuers.  “In theory, governments can change a given tax system as they wish, subject to the relevant legislative process and within the constraints of international law. In practice, however, there are material constraints,” says Moody’s.

‘‘The coronavirus crisis will lead to long-lasting revenue losses for emerging market sovereigns because their ability to implement and enforce effective revenue-raising measures in response will be an important credit driver over the next few years because of their sizeable spending pressures and the subdued recovery in the global economy we expect next year.’’

According to Moody’s, together with a rise in stimulus and healthcare spending related to the crisis, the think tank expects this drop in revenue will trigger a sizeable fiscal deterioration across emerging market sovereigns. Most countries, including Botswana, are under pressure of widening their tax bases, Moody’s says that this will be challenging. “Even if governments reversed or do not extend tax-easing measures implemented in 2020 to support the economy through the coronavirus shock, which would be politically challenging, this would only provide a modest boost to revenue, especially as these measures were relatively modest in most emerging markets,” says Moody’s.

Botswana has been seen internationally as a ‘tax ease’ country and its taxes are seen as lower when compared to its regional counterparts. This country’s name has also been mentioned in various international investigative journalism tax evasion reports. In recent years there was a division of opinions over whether this country can stretch its tax base. But like other sovereigns who have tried but struggled to increase or even maintain their tax intake before the crisis, Botswana will face additional challenges, according to Moody’s.

“Additional measures to reduce tax evasion and cutting tax expenditure should support the recovery in government revenue, albeit from low levels,” advised Moody’s. Botswana’s tax revenue to the percentage of the GDP was 27 percent in 2008, dropped to 23 percent in 2010 to 23 percent before rising to 27 percent again in 2012. In years 2013 and 2014 the percentage went to 25 percent before it took a slip to decline in respective years of 2015 up to now where it is at 19.8 percent.

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