Furnmart has decided to close down its operations in Zambia following poor performance in that country.
The Zambian economy has been under duress following the fall in commodity prices, which affected the price of copper, its principal export. The decision by management of Furnmart to close down the Zambian operations comes as little surprise as the Botswana based company has had concerns about its future in Zambia.
“Management would like to bring to the attention of shareholders that the publication of abridged audited consolidated financial statements will be delayed in view of the decision to wind up operations in Zambia which is having an impact on the finalisation of the results. The Company commenced the winding up of the Zambian operations on the 1st November 2016.
Management is confident that this will have a positive impact on future profitability,” said Tobias Louis John Mynhardt, the group’s deputy chairman and also the Managing Director of Cash Bazaar Holdings.
The decision to close down the Zambian operations follows an earlier cautionary statement which was issued by Mr. Mynhardt to the effect that the company’s profit after tax for the twelve months ended 31 July 2016 is expected to be more than ten percent (10.0%) lower than the corresponding period ended 31 July 2015. Furthermore, the group’s performance for the financial year ended 31 July 2015 recorded profit before tax which was 18.6% lower than the prior year mainly as a result of lower gross profit margins and higher operating expenses. In the latest financials released this year, the interim results showed that profit before tax was 89.3% lower than the previous corresponding period.
The group’s loss in the interim results ending 31 January 2016 was materially impacted by the weakening of the currencies in the region, outside of Botswana. This had an impact on revenue, trading results and the valuation of the group’s intercompany receivables and investments. The group’s performance was weighed down by the exchange loss of P45.2m compared to an exchange profit of P3.9m in the previous year.
The group said the exchange loss was caused by the weakening of the group’s other functional currencies in the past 6 months and added that this illustrated the material impact that the weakening of these currencies has had on the results.
“The difficult trading conditions in the region and the currency fluctuations have had an impact on these results. However, management believes that the fundamentals of our respective business units are sound and that these businesses are well positioned to take advantage of future economic improvement. The Zambian business unit remains a challenge. The Group’s Home Corp model in South Africa also requires refinement,” the group said in a management analysis accompanying the interim results.
Still on the same management analysis, the group said it will continue to trade cautiously in Zambia citing concerns about the material weakening of the Zambian Kwacha during the period under review. Prior to the interim results, the group had raised similar concerns in its 2015 annual report, highlighting that the kwacha has weakened substantially against the pula, and it was revealed then that the management is closely focussing on and monitoring the Home Corp and Zambian business models to ensure that these investments yield the required return. However it would appear the management finally decided to pull the plug after the situation failed to improve in Zambia.
Furnmart Limited retails domestic furniture and electrical appliances through its network of stores in Botswana, South Africa, Namibia and Zambia. The group is made up of 1005 shareholding in the following subsidiaries: Furn Mart (Proprietary) Limited (Namibia), Xtreme Discounters (Proprietary) Limited (South Africa), Furniture Mart Zambia Limited, Furniture Mart (Proprietary) Limited (Botswana) and Furnmart (Proprietary) Limited which is a distribution company registered in South Africa.
Furnmart which is listed in the Botswana Stock Exchange BSE) has also seen its performance in the stock market taking a hit. In 2015, the share price was down by as much as 48%. The situation did not improve this year as the company has so far shed off 22% to trade at 0.85t. The company has 606 446 080 issued shares, and in 2014 only 0.35% of the total issued shares was traded. This slightly improved in 2015 when the number of shares traded as percentage to the total issued shares went up by 1.13%. In 2015, the listed company had 481 shareholders comprising of 34 body corporate, 57 Insurance companies and pension and provident funds as well as 390 individuals. The public accounts for 59.04% shareholding while Director’s interest stand at 40.96%.
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Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”