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Weaker Pula boosts profits

Furnmart Limited’s interim results for the current year have shown marked improvement in profitability following the furniture retailer’s decision to close its Zambian operations in the previous year. The half year results were boosted by the weakening pula against the rand.


“This performance must be seen against the backdrop of a difficult trading environment. Lower economic growth, higher prices driven by currency weakness, high levels of consumer indebtedness and unemployment, rising food inflation and the drought in the region, have all contributed to this unsatisfactory performance. Furthermore, our main regional competitors have rationalised their positions in South Africa and are expanding into Botswana and Namibia,” this was revealed in a statement signed by Furnmart chairman, John Tobias Mynhard, and Daniel le Roux, the group’s managing director.


In the latest figures, the group’s revenue slightly increased by 0.3 percent to P624 million following lower trading volumes. On the other hand, operating income decreased by 25.8 percent to P55.8 million. The group says this mainly due to the winding down sales of the Zambian operations as well as strong competition in the region. Furthermore, the operating income was also dragged down by higher operating expenses and lower finance income earned.


While the Group’s operating profit is 32.5 percent lower than the 2016 interim results, Furnmart managed to post profit before tax of P41 million, up by more than 500 percent. The growth in profit before tax was largely in part to the weaker pula against other currencies where Furnmart operates. “The exchange gain of P6.4m is substantially better than last year’s exchange loss of P45.2m. This gain was the result of the weakening of the Pula against the Group’s other functional currencies,” the group said in a statement.


The group’s profit after tax for the current interim results is at P23.7 million, a major improvement from the P4.4 million recorded in the 2016 interim results. The group’s profitability in the past has been negatively impacted by currency fluctuations, forcing Furnmart to exit the Zambian market. In 2015, the Zambian economy was under pressure due to the fall in copper prices, leading to the weakness of the Kwacha currency. This resulted in currency exchange losses when translating currency to the stronger Pula which is the functional currency at group level.


Furnmart management, startled by the interim loss and the pressures from tough trading conditions, decided to take active measures in late 2016 to turn around the struggling business. Part of the measures involved closing down loss-making branches while non-performing stores were to be subjected to a turn-around strategy. Furnmart commenced the winding up of the Zambian operations on the 1st of November 2016, with the management confident that these measures will have a positive impact on future profitability of the group.


In the full year end results for 2016, the group managed to reduce the significant currency exchange loss which was recorded in the interim results of that year. This led to Furnmart posting a profit of P47.7 million; however this was down by 14.9 percent from the 2015 full year results.


With profits declining, the management decided not to declare dividend as it will not make business sense to do so. The management further stated that it intends to build up reserves so that it could resume making dividend payouts in the next interim reporting stage. Now with Zambian headache out of the way and subsequent recovery in the interim results for this year, Furnmart has held true to its end of the deal.


“As indicated at year-end, the Company will resume dividend payments at this interim reporting stage. In line with the Group’s dividend policy, a gross interim dividend of 1.30t per share was declared on 11th April 2017 and is payable to shareholders registered on 12th May 2017, for payment on 26th May 2017,” the group announced in a statement accompanying the latest interim results.


The big dividend payout will help soothe shareholders who were left bruised by Furnmart’s performance on the Botswana Stock Exchange (BSE) in the previous years.  Furnmart ended the year as one of the biggest losers in the stock market after its share price went down by as much as 35 percent. The drop in share price in 2016 was in addition to another 48 percent share price loss in 2014. The company’s improved profitability in the latest interim results did little to excite investors as the share price remained stubbornly at 0.65t, down by 7.1 percent this year.

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Fiscal policy: new taxes, levies for 2021

25th January 2021
Fiscal-policy-new-taxes,-levies-for-2021

Government has made some adjustments0 in fiscal policy, as some taxes and levies are to be imposed from the beginning of March this year. It is expected that effective 1st March 2021, government will announce an increase on fuel levy followed by increases in tax items including VAT and tax on sugar-sweetened beverages.

FILL UP AND PAY CAESAR TOO AMID FUEL CRISIS

Ministry of Mineral Resources, Green Technology and Energy Security in 2017 approved 17.5 thebe per litre which will be in addition to the already existing fuel levy of 13.5 thebe per litre.
Apparently Botswana consumes 1.2 billion litres of petroleum products and the levy could raise P210 million per annum which could be used to; purchase of stocks for Botswana Oil Limited, meet insurance premiums for government oil storage facilities and construction of other strategic storage facilities around the country.

According to investment manager Kgori Capital, the new tax might not immediately lead to an increase in fuel pump prices as the National Petroleum Fund (NPF) might be able to cushion the effect of the tax in the short term.  Kgori Capital said this however could see increased outflows from the fund which could be unsustainable over the long term.

Recently government released a ‘National Fuel Supply Update’ announcing that the shutdown of three refineries in South Africa, making Botswana look elsewhere to increase sourcing from alternative suppliers. As assurance government stated that it is currently able to meet fuel demand, that back-up is available, it would only be deployed if the situation deteriorates.

Other determinants of fuel price dynamics could be the Rand vs US Dollar. This week on Thursday the Rand rallied for another day, retaining gains from the previous day, as risk appetite stayed high on hints that the new US administration would be in support of a huge stimulus to uplift the economy.

On Thursday commodity news oil prices were supported for yet another day on Wednesday, climbing above US$56 per barrel in mid-afternoon trading, supported by expectations that the incoming US administration would approve a large stimulus package to boost the economy and in turn support oil demand.

According to stockbroker Motswedi Securities, also supporting the commodity’s pricing were ongoing supply cuts by the Organization of Petroleum Exporting Countries as well as expectations that US crude inventories are forecast to decline for the week ended 15 January 2021.

Last week the FNBB researchers said they expect a possibility of a rebound in oil prices as economic activity recovers this year. FNBB said it is probable that fuel prices will be increased to mimic international oil price movements.

First National Bank of Botswana Quantitative Analyst, Gomolemo Basele, in his recent analysis of December inflation, said over the course of this year inflation should receive some upward pressure from volatile items, particularly the transport group index as the fuel levy is anticipated to increase from P0.12 to P1.12, effective 1st March 2021.“We also expect further pressures on the administered prices of water and electricity, as well as increases in tax items,” said Basele on behalf of his FNBB economy research team.

VAT TO GO UP SOONER THAN EXPECTED, JOB LOSSES

Amid being met with a lot of opposition, FNBB expect an increase in VAT from 12 percent to 14 percent, effective 1st April 2021. Last year permanent secretary in the Ministry of Finance and Economic Development, Wilfred Mandlebe told Parliamentary Committee on Government Assurances (PCGA) that as part of economic recovery from Covid-19 shocks, VAT will be increased from 12 percent to 14 percent in the next financial year.

This is despite Basele in his December inflation report warning that the demand side will remain muted this year as the bulk of Botswana’s labour force will be faced with unemployment challenges as well as pressures on disposable income levels due to diminished economic activity.

State of Emergency which bars employers to lay off employees might end the same time when government imposes an increase in VAT, this is why FNBB expects inflation to average 2.8 percent in 2021 and anticipate that the Bank of Botswana will remain accommodative this year and cut the bank rate by 25 basis point.

INTRODUCTION OF SUGAR LEVY

The beginning of the next financial year will see tax on sugar-sweetened beverages be 2 thebe per gram over and above 4 grams per 100 millilitres. This tax will be implemented by a Statutory Instrument to be issued by Ministry of Trade and Investment.

According to World Bank last year September, sugar-sweetened beverages (SSBs) are non-alcoholic beverages that contain caloric sweeteners, such as sucrose (sugar) or high-fructose corn syrup (HFCS). SSBs include carbonated soft drinks (carbonates), energy drinks, concentrates or syrups, sports drinks, less than 100 percent fruit or vegetable juices such as juice drinks or nectars, ready-to-drink teas and coffees, sweetened waters, and milk-based drinks.

SSBs are said to be the main factors of overweight and obesity which leads to a number of chronic non-communicable diseases (NCDs), including coronary heart disease (CHD), stroke, diabetes, and at least 12 cancers (cancer of the mouth, pharynx and larynx, oesophagus, stomach, pancreas, gallbladder, liver, kidney, prostate, colorectal, endometrium, ovaries, and post-menopausal breast).

In his first State of the Nation Address (SONA) in 2018, President Mokgweetsi Masisi blamed the increasing incidence of people who are overweight and obese amongst the Botswana population on the increased consumption of sugar sweetened products, especially beverages.

HOUSING INFLATION TO SOAR INTO THE NEXT FINANCIAL YEAR

Botswana Housing Corporation is expected to rise to the occasion this year by taking more from Batswana pockets in the coming financial year. The housing utility will adjust rentals by more than 100 percent margin effective 1st April 2021.

This could further spike future inflation into the housing and utilities group index which in December registered a rise of 0.3% m/m owing to higher costs associated with materials for the maintenance and repair of dwellings (0.9% m/m).

INFLATION TO REMAIN SUBDUED AND UNDER THE OBJECTIVE RANGE

The December 2020 inflation remained unchanged at 2.2%, bringing the 2020 inflation average to 1.9%. While Basele believes the 2021 inflation should receive some upward pressure from volatile items, particularly the transport group index as the fuel levy is anticipated to increase from, he said the demand side will remain muted this year as the bulk of Botswana’s labour force will be faced with unemployment challenges as well as pressures on disposable income levels due to diminished economic activity.

This moves FNBB to expect inflation to be just below the 3-6 objective range and be lower at 2.8 percent, the bank’s researchers further anticipate that the Bank of Botswana will remain accommodative this year and cut the bank rate by 25bp.

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Gov’t throws weight behind CBM industry

25th January 2021
Anthony-TONY-GILBY

Botswana Government through Ministry of Mineral Resources, Green Technology & Energy Security (MMGE) has underscored its intention to support power generation through Coal-Bed- Methane (CBM).

This week Tlou Energy, one of the publicly listed companies exploring CBM power generation revealed in a circular to shareholders that the Ministry’s commitment to support the industry was a significant push to its ambitions.

Tlou Energy is focused on delivering power solutions to Botswana and southern Africa to alleviate some of the chronic power shortage in the region. The company is currently developing projects using gas and plans to add solar power projects to provide a cleaner power source. Botswana has a significant energy shortage and generally relies on imported power and diesel generation to fulfill its power requirements.

Last year Tlou Energy and state owned Botswana Power Corporation (BPC) singed a Pilot Power Purchase Agreement (PPA) for the first 2 Mega Watts of power from the Lesedi project. A grid connection agreement was also signed which enables the injection of power into the BPC grid.

These according to Tlou are key agreements that will facilitate development of the power project and the sale of first power. The company says things are promising for a larger power purchase agreement. The BSE listed energy outfit revealed that, “Botswana’s Ministry of Mineral Resources Green Technology and Energy Security (MMGE) has provided confirmation that negotiations on a larger PPA are due to commence in February.”

Tlou’s Managing Director, Mr Tony Gilby commented, “It is great to see that Botswana is open for business and the Government is motivated to get the gas industry up and running.” Gilby revealed that his company plans to start development of the Lesedi project as soon as possible noting that “confirmation of the Government’s enthusiasm to provide the necessary support to ensure commercial development of CBM is very well received.”

“In addition, we have also recommenced negotiations with Botswana based project financiers this month as we aim to close a deal for funding as soon as possible. After what was an extremely challenging year the Company is already making progress in 2021 and anticipate further advancement on all fronts in the coming term. We look forward to updating the market with further developments in due course,” he said.

Tlou said it has received written confirmation from MMGE of the “intention of MMGE to fast track the development of Coal Bed Methane (CBM) in Botswana.” MMGE also stated that it is “happy to provide the necessary support to ensure commercial development of CBM.”

In relation to the current tender to implement up to 100MW of CBM fired power plants MMGE has stated that negotiations with preferred bidders are due to commence in February 2021. The letter also acknowledged that the “Government is fully committed to seeing this project coming to fruition, as it will promote the gas industry, contribute toward import substitution, as well as to improve the livelihood of Batswana.”

“We welcome this update and look forward to negotiation and finalization of the tender process in the near term,” Tlou Energy Directors said.In 2018, MMGE issued a Request for Proposal for Development of up to 100 Mega Watts of CBM fueled power plants in Botswana.

Tlou submitted a comprehensive response to the tender including a plan to develop the project in stages, as well as outlining project feasibility, proposed field development, installation of power generation facilities and supply of power into the grid in Botswana.

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KBL shut down operations indefinitely

20th January 2021
KBL

Kgalagadi Breweries Limited (KBL) has suspended its operations indefinitely owing to the tough trading conditions occasioned Government decision to ban the sale of alcohol at the beginning of this month.

The brewer announced the decision today (Wednesday). KBL Corporate Affairs Manager Madisa said from the 25th January 2021 only a minimal number of critical roles will continue to be staffed and all other operational activity will stop.

KBL also acknowledged the impact this will have on the overall supply chain and those whose livelihoods depend on the beer industry and requests their understanding.

The current ban is expected to end on 31st January 2021, KBL said should the ban be extended past this date, suspension of its operations will continue.

KBL explained that its Tuesday meeting with suppliers was to align with them that due to the current situation, the brewer will suspend payments as of 6th February 2021, up for review pending the outcome of the current alcohol ban.

“However, it is regrettable that this latest total ban on alcohol sales has resulted in the suspension of KBL’s operations, which will remain in place for as long as the alcohol ban persists. KBL continues its efforts to engage government on this critical issue, which is having an enormous impact on the industry and its extensive value chain,” said Madisa.

On Tuesday afternoon, KBL conducted an ‘emergency meeting’ with its suppliers addressing some business decisions the company has made amid the current alcohol ban. Botswana has several alcohol bans since the first lockdown of March.

Mostly alcohol has been banned as a measure of curtailing the spread of Covid-19 and government then lived with putting stringiest operating hours for alcohol sales and distribution for a long time. Next week Monday KBL will be shutting down its operations, after a two weeks ban on liquor.

Sources say ever since the 4th of January 2021 when the December curfew regulations were extended, KBL has been brewing stacks of liquor for stockpiling. This is solely the reason why the brewer decided to close shop and stop manufacturing alcohol, because KBL’s depots no longer needed supply. On Tuesday suppliers were told to stop supplying KBL as next week the plant will be closing.

Air of uncertainty was hovering in the KBL plant premises on Tuesday as many workers feared mostly for their jobs. No one knows when alcohol ban will be lifted or if Botswana is going for a hard lockdown following the recent surge of Covid-19 infections. Botswana has 18,630 coronavirus cases, with 88 deaths and 14,624 recoveries.

KBL owner Botswana Stock Exchange (BSE) listed Sechaba Holdings came into contact with response to Covid-19 in March when Botswana recorded its first cases and that was the time when the company was doing well for years since the shedding of alcohol levy.

Sechaba associates, KBL and Coca Cola Beverages Botswana (CCBB), that time according to the holding company in its abridged financial results for the year ended 31 December 2019, continued to forecast growth in 2020 notwithstanding the challenges related to COVID-19.

Sechaba that time saw the business environment has been generally positive including relationship with stakeholders and the associates continue to manage the performance and business continuity risks.

Ten months ago the brewer underestimated the damage that can come with the pandemic and expected Covid-19 disruptions to be “temporary and the business will survive.”

That time Sechaba’s sole associate, KBL operates traditional beer breweries, alcoholic fruit beverages and a clear beer brewery.

In the period that just ended in December 2019, KBL contributed 72 percent to Sechaba’s revenues while CCBB contributed 28 percent. KBL also performed high in contribution to profit after tax with a share of 74 percent while CCBB contributed 26 percent.

Sechaba holds 49.9 percent in the local headline alcohol brewer KBL and 49.9 percent in the non-alcoholic drinks associate, CCBB. Sechaba holds 60 percent of the shares of KBL while SABMiller Botswana B.V. holds 40 percent. SABMiller Plc has management control in the operating company. The Botswana Development Corporation has a 25.6 percent shareholding in Sechaba Breweries Holdings Limited.

The glitter on the glass of KBL or Sechaba, is of December 2019 financial results which was downplayed and turned into a bearish affair in the financial results for the half year ended 30 June 2020. For those results, there was a spill in profit by Sechaba cash cow KBL by 72 percent while CCBB recorded a decline in profit by 15 percent, both and respectively in correspondence with the same period in 2019. All this downfall comes down to a loss of 60 percent of profit by the parent company. That was more than the 60 percent fall expected before the release of results.

In September during the release of the June 2020 results, Sechaba admitted that the intervention put by government since April, to fight the Covid-19 pandemic, negatively impacted its business performance and its associates, KBL and CCBB bore the full brunt. Revenue collected for KBL was lower by 37 percent while for its sister associate; CCBB, the numbers were down by 7.1 percent. This is the time when sale of alcohol was banned and manufacturing of soft drinks was not part of essential services.

Sechaba Chairman, Bafana Molomo last year said even though Covid-19 interventions would have an impact on the associates, this impact is expected to be temporary and the businesses will survive.

“However, it is advised that the situation is changing constantly and that it will be monitored closely. The Group’s associates continue to forecast growth in 2020 notwithstanding the challenges relating to Covid-19. The business environment has been generally positive, and the Group continues to enhance relationships with all stakeholders. The associates continue to manage the performance and business continuity risks,” he said.

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