First National Bank Botswana (FNBB) has beat analysts’ expectations to report a 9% increase in profit despite earlier cautions that its exposure to BCL group might affect drag down performance. This was revealed in the bank recently released half year results for the year ended December 2016.
The country’s largest bank by market value and assets has reported a 35% increase in Net Interest Income to P580.7 million. This was achieved in part by a 10% increase in Interest and similar income which came at P705.6 million and a massive 40% reduction in interest expense and similar charges. The Net Interest income was reduced by a spike in impairments of advances which surged to P150.3 million or up by 56% to bring down the Net Interest Income by 28%.
However, a 7% increase in Non Interest Income(NII) brought in P499.6 million, bringing the total Income from operations to P930 million, up by 16%. The growth in NII was spurred by the resultant increase in transactional volumes. In August last year the bank increased its bank charges and fess after the Bank of Botswana lifter the two year moratorium on banking charges and fees.
The total income from operations was subsequently eroded by increases in operating expenses (up by 28% to P271.3 million) and employee benefits (up by 15% to P235.9 million). FNBB says significant investment costs were incurred in establishing customer-focused initiatives and in developing and maintaining systems platforms.
Further investment costs were incurred from opening two additional branches (Mogoditshane and Mochudi), expanding the Bank’s branch representation to 24. The bank says the success of the above, together with other initiatives to improve and diversify services, resulted in customer numbers growing from 445k to 477k, being a 7% increase year-on-year.
In the end profit for the period was up by 9% to P317.7 million, bringing to an end a slump in profits that the bank has been experiencing in the last two years. The bank’s profit was 15% down in its last previous full year results. An improvement in the first half of the year results will buoy FNBB to double down on its efforts to beat analysts’ estimates for the next reporting period even though the bank itself is cautions about future prospects.
“The business environment continues to be challenging, and characterised by business closures and restricted consumer spending power. The most significant closure was that of BCL, with an impact on banks both through direct and indirect credit exposures. The prudent provisioning adopted by the Bank against the BCL exposures caused impairments to increase by 56%. Discounting the BCL effect, impairments would otherwise have increased by 23.6%, reflecting the Bank’s credit structures, and its careful and selective approach to lending”, said Steven Bogatsu, FNBB CEO, in a written statement accompanying the results.
The bank’s balance sheet grew by 9% to P22.4 million on the back of a 13% increase in Net Advances to Customers which now stands at P15 billion. The 13% increase in advances is above the average level in a market where national bank credit extension was at 7.8% in the last 6 months.
Another notable increase in the balance sheet was cash and short term funds which increased by 24% to P3.7 billion. Still on the balance sheet, the bank’s investment securities and other investments went down by 16% to P2.7 billion, reflecting the downturn equities markets especially in Botswana where the benchmark index declined by as much as 11%.
The group is made up of five segments; retail banking, business banking, Rand Merchant Bank (RMB), Wesbank and treasury. The retail segment grew by 41.4% from the previous period and is the largest contributor to revenues. The segment contributed P520.9 million to the group’s operating income, reflecting a 48% contribution. The business banking segment registered modest growth of 15.3% and has contributed 28.8% to the total operating income after bringing in P577 million.
The investment arm of the bank, RMB, showed slight growth of 7.3% from the previous period. RMB’s contribution to total operating income stood at P171.3 million, representing a contribution of 15.8% to the group. Another notable performance was from the vehicle and asset financing division, Wesbank, which grew by 77% while contributing P69.1 million or 6.4% of the group’s operating income. The treasury segment, which manages the group’s liquidity and funding, was the worst performer as interest expenditure continues to depress income margins. The segment’s operating income declined by 87.2% to P7.6 million from the previous year.
The latest results from FNNB will help quell shareholders and investors who have been losing faith in the stock which plummeted by 20% in 2016 and has since dropped by 9.12% this year to trade at P2.69. Despite the fall in stock price, FNBB remains the largest company on the local bourse with a market capitalization of P6.9 billion. FNBB says in line with the impact of the market conditions on the bank’s profitability, the Board of Directors believe that it is appropriate to continue with the prudent approach to capital management and proposed an interim dividend of 5.0 thebe per share.
“Despite facing a number of uncertainties and subdued current economic conditions, the Bank continues to adopt a positive approach to future growth, and has positioned itself to take advantage of any turn in the economy through continuing to invest appropriately in people, infrastructure, and innovation. The results of this strategy are partly evident in the results for 31 December 2016 notwithstanding future benefits to be derived when the economy improves”, the bank said.
FNBB also added that given the challenging business environment, the bank will continue with its focus on efficiency which will culminate in its overall goal of being a customer centric bank and the pursuits of diversifying revenue streams.
In the coming months prices will go up and inflation will shoot sharply above the target of 3 percent to 6 percent towards the third quarter of 2021, the Bank of Botswana on the other hand will continue to withhold its knife on the Bank Rate. This is according to a forecast made by Kgori Capital in its recent Market Watch Segment.
Statistics from Statistics Botswana show that the recent 1.8 percent increase in the September inflation, from 1 percent in August, was a reflection of the upward adjustment in public transport fares (Transport (from -6.9 to -3.9 percent) in September 2020, which is estimated to have increased inflation by approximately 0.64 percentage points.
Local anti-trust body, Competition and Consumer Authority (CCA), this month received back to back acquisition proposals from South African clothing retailers to wipe out their former rivals, Edcon, from Botswana malls.
Last week BusinessPost was in possession of Merger Notice No 23 of 2020 whereby a South African clothing retailer owner, Retailability Proprietary Limited, through Oclin Proprietary Limited, proposed to acquire parts of the Edgars business conducted by Edcon in Botswana (through Edcon Botswana), as a going concern, consisting of certain assets and identified liabilities.
South African government’s Business Rescue Practitioners earlier this year announced that Retailability will buy Edgars, after the latter filed for a business rescue plan in April after it failed to pay suppliers. This move will see Retailability add Edgars to its portfolio consisting of brands such as; Legit, Beaver Canoe and Style.
Retailability landed on Botswana shores 18 years ago with its flamboyant urban fashion Style which had 17 stores. Style, having almost the same target market as Edgars as it offers men’s and ladies’ contemporary and formal fashion, gave the 91 year old legendary clothing retailer a run for its money, and has won the battle as its parent company has taken over Edgars.
Retailability brands are synonymous with Botswana shopping centres and there are currently five (5) Beaver Canoe stores, 10 Style stores and seven (7) Legit stores across this country. The Beaver Canoe stores sell clothing apparel for men and boys only. The Legit stores have a fashion store format which focuses on the retailing of clothing, footwear, accessories, colour cosmetics and cellular products.
Retailability operates in over 460 stores across South Africa, Namibia, Botswana, Lesotho, and Eswatini. Many observers suggest that because of the deal with Retailability to swallow Edcon, most Edgars stores in Botswana will change their name and be branded Style. A sad tale for religious consumers of the Edgars trademark who got used to love their favourite brand for years.
According to CCA’s Merger Notice No 23 of 2020, Retailability is controlled by Clifford Raymond Lines (through a company which functions solely as a holding company of his interests in Retailability) and Metier Investment and Advisory Services Proprietary Limited (“Metier”). Metier is a private equity enterprise with investments in a number of industries spanning from healthcare, hospitality, FMCGs and telecommunications.
Retailability directors are mostly South Africans; Clifford Raymond Lines, Mark Richard Friday and Norman Victor Drieselmann. Only Nasreen Essack, who was appointed February this year, is a Motswana. He comes after Brian Thuto Tsima left on the same date. Retailability 100 percent owns Oclin Proprietary Limited, the company it is acquiring Edgars with, by a capacity of 3000 shares.
The target business, Edgars, offer textiles, cosmetics and cellular products. Edcon has a Motswana director, Charles Mzwandile Vikisi, a South African, Shane Van Niekerk and Zimbabwean Jethro Kamutsi.
“The Target Business comprises of two (2) Edgars franchise brands and private label stores across Botswana. These stores target middle to upper income customers and are home to a range of private label brands such as Free2BU, Charter Club and Stone Harbour, and a wide range of market label brands (such as Levi’s and Guess) for clothing, footwear and cosmetics.
In addition, the Target Business operates iconic Edgars Home and Edgars Beauty stores as store-in-store formats rounding out the department store offering in Botswana,” said CCA. Foshini also lines up to take Jet Botswana from Edcon.
The Foschini Group (TFG) released a statement confirming its latest intentions to acquire Edcon assets or Jet for a cash purchase consideration of R480 million. This was after the business rescue practitioners offered TFG to buy Jet by that amount.
CCA is currently mulling on a proposed merger by TFG to take over Jet operations in Botswana. Merger Notice No 21 of 2020 from TFG came a few days before the Retailability proposal. In this merger TFG, acting through Foschini Botswana, want to take over “parts” of the Jet business conducted by Edcon through Jet Supermarkets Botswana.
TFG will be willing to add Jet to its portfolio of 30 retail brands that trade in clothing, footwear, jewellery, sportswear, homeware, cell phones, and technology products from value to upper market segments throughout more than 4085 outlets in 32 countries on five continents. TFG will also get Jet’s distribution centre located in Durban and certain stores in Botswana, Lesotho, Namibia and Eswatini. Also part of this fat deal is that the company is looking to also acquire JET Club and all existing JET stock of no less than R800 million.
Johannesburg listed TGF owns Foschini Retail Group which owns the local operations called Foschini Botswana, the acquiring enterprise according to CCA merger notice. “TFG is not controlled by any enterprise/s and for completeness, the three largest shareholders of TFG holding shares greater than 5% as at 27th March 2020 are: Government Employees Pension Fund (16.2%) Public Investment Corporation (13.2%); Old Mutual Limited (6.7%); and Investec Asset Management (6.3%). The remaining issued share capital in TFG is widely held,” said the merger notice.
Only Abdool Rahim Khan is a Motswana in the Foschini Botswana directorship, the rest; Ganeswari Shani Naidoo, Anthony Edward Thunström and Gustav Jansen (alternate director) are South Africans.
According to the CCA merger, the Jet Business is Edcon’s discount department store division, selling clothing, footwear, homeware and some cosmetics as well as cellular products and targets lower-to-middle income consumers throughout Botswana. The Jet Business does not directly or indirectly control any enterprises, says the notice. CCA seeks any stakeholder views for or against the proposed merger, which may be sent within 10 days from date of this publication to the following address.
Botswana Communications Regulatory Authority BOCRA signed a memorandum of Agreement (MoA) with the Ministries of Transport and Communications (MTC), Basic Education (MoBE) as well as Local Government and Rural Development (MLGRD).
The MoA seeks to continue the collaboration that dates back to 2016 when the three parties first agreed to work together in a project aimed at computerizing and providing broadband Internet to primary schools in remote and underserved areas of Botswana.
The project benefitted 68 primary schools and 9 secondary schools through the construction of Local Area Network (LAN) in each primary school, provision of 5 Mbps dedicated broadband Internet to each Primary School and provision of Wi-Fi enabled tablets, laptops and related peripherals such as printers and copiers.
Further, the project will see the augmentation of computers in 9 Junior Secondary Schools with 30 laptops per identified school and employment of Information Technology (IT) officers at each primary school.
When speaking at the signing ceremony in Gaborone, Chief Executive of BOCRA and Chairperson of Universal Access and Service Fund (UASF) Board of Trustees Martin Mokgware said the project’s ultimate goal is to facilitate pupils in schools and host villages to be able to play a meaningful role in the digital economy.
Mokgware indicated that this necessitates upgrading of existing Telecommunications infrastructure to high capacity broadband that will support delivery of education, accessibility to the quality Internet and usage of ICTs.
The Fund began its inaugural programme by sponsoring the provision of WiFi hotspots in public areas around the country as its first project. Following the successful implementation of public WiFi hotspots, the Fund identified Kgalagadi, Ghanzi and Mabutsane areas for mobile network upgrades, schools computerization and internet provision.
Conscious that the project would not be possible without buy-in and support from MoBE, MTC and MLGRD, the Fund facilitated the signing of the first MoU between the three parties in 2016 for implementation of the project.
BOCRA Chief Executive said the signing of this agreement is aimed at benefitting the Kweneng District, adding that they have already assessed the area and have determined that they will be covering 62 underserved villages and 119 schools, 91 of which are primary schools.
“This is a project for which the partner Ministries need to re-commit for its success. Lessons from the previous schools’ computerization and internet connectivity project require that we increase our involvement and resources dedicated to the project for it to be successful. It is my belief as the project coordinator, that we will not do things the way we did them during the first project, for if we do, then we will not have learnt anything,” he said at the signing ceremony.
The purpose of learning is so that there can be continuous improvement to minimize the length of time and amount of resources utilized, he said expressing confidence that their partners will step up to the plate and ensure they play their part in the implementation of the project and that it will progress smoothly having already tread along a similar path.
UASF’s role lies mainly in funding and project management. According to Mokgware, once the project is completed, the work to integrate ICTs into the classroom begins in earnest. Therefore, he said, the project will not succeed without full cooperation and oversight of partners.
“MoBE will put in place the necessary content and ensure that the curriculum is available to all. MLGRD will provide, among others, the enabling environment by ensuring readiness of the school’s infrastructure and necessary security.”