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Famous Brands Acquires 51% of Retail Group


Famous Brands, the leading Franchisor in Africa has bought a 51% controlling stake in Retail Group. Famous Brands is the holding company for reputable franchised brands such as Mug & Bean, Wimpy, Steers, Milky Lane and Debonairs Pizza. 



Retail Group is currently owned by a consortium of investors, with the majority stake held by Craig Mackenzie, a long-standing business partner of Famous Brands and founder of Debonairs Pizza in 1991.

Established in 2000, Retail Group comprises 19 company-owned restaurants and manages nine franchised restaurants across Botswana. 

Famous Brands Limited is a public company listed on the Johannesburg Stock Exchange (JSE) in South Africa. Its head offices are in Midrand, Johannesburg. The company is Africa's leading quick-service and casual dining restaurant franchisor.

The company's global footprint of franchised stores spreads across the world, totalling 2,163 stores (2013): South Africa 1,881, rest of Africa 172, United Kingdom 110 (2013). Besides its core business activities of quick service and casual dining, the company is also involved in manufacturing and logistics. 



Group Chief Executive, Kevin Hedderwick, explains, “This transaction aligns with our deliberate approach to either acquire or take a controlling stake in existing Master License territories in neighbouring countries whereby we can exercise complete influence over our brands. In addition, we want to test our mettle in company-owned stores in advance of a potential broader foray into that arena.

This transaction provides us with the opportunity to achieve both goals at minimum risk.”

“Famous Brands continues to set itself ambitious growth targets,” adds Hedderwick, “and this strategy affords us a strong new avenue for expansion.Given the Group’s critical mass in the region, opportunities will be investigated to provide the business with in-house logistics and manufacturing services, which are currently outsourced.

The operation will also benefit from Famous Brands’ expanding brand portfolio. 

Hedderwick notes, “Retail Group is very well managed and a role model Master License business. The management and operational team, which are being retained, are exceptional and central to facilitating a seamless integration of the business into Famous Brands’ structure.

Mackenzie comments, “This transaction fully aligns Retail Group with Famous Brands, thereby providing the business with more effective access to the extensive resources afforded by Africa’s leading franchise group. We believe that the resulting blend of skills and experience will culminate in strong growth opportunities for the operation in Botswana and beyond.

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Illustrating the compelling rationale for the transaction, Hedderwick says, “The food services sector in Botswana is growing rapidly, reflected by the 44% increase in franchised food service outlets industry-wide in the past five years.

Per capita GDP of US$16,400 is the third highest in Africa, ahead of Mauritius and South Africa.” He adds, “Political and economic stability have resulted in a stable labour market, while relatively lower tax and VAT rates compared to South Africa offer a further incentive for investment.”

Hedderwick elaborates, “The opportunity exists to grow Famous Brands’ share of this market through the existing brand portfolio and additional and/or new brands.

While Wimpy is the leading Casual Dining restaurant brand in Botswana, and Debonairs Pizza the entrenched preferred pizza brand, the recently opened maiden Steers and a second Mugg & Bean restaurant in Gaborone have delivered beyond our expectation and illustrate the potential to grow these offerings into other cities and towns.”

As at 28 February 2015, the contribution from Famous Brands’ Rest of Africa business comprised 8.9% of total system-wide franchise sales.

Hedderwick concludes, “We have stated frequently that we have ambitious and deliberate plans to grow our business outside of South Africa, and we foresee our operations in the Rest of Africa becoming increasingly significant to the Group over time. This acquisition advances our stated strategy to continue to build on existing momentum in the region in line with our first-to-market and narrow-and-deep strategy.”


The purchase consideration falls below the threshold of a categorised transaction in terms of the Listings Requirements of the JSE Limited and will be settled from cash reserves. The transaction is subject to approval from the Competition Authority of Botswana.


A business analyst who preferred anonymity said that this transaction will be given the green light  by the Competition Authority. He cautioned that in this instance the franchisor will compete with other franchisees who buy the franchise from Famous Brands. He explained that there will be no value addition to Botswana and Batswana as Famous Brands will be suppliers, franchisor, franchisee and competitors to other franchisees of their brands.


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Business

New study reveals why youth entrepreneurs are failing

21st July 2022
Youth

The recent study on youth entrepreneurship in Botswana has identified difficult access to funding, land, machinery, lack of entrepreneurial mindset and proper training as serious challenges that continue to hamper youth entrepreneurship development in this country.

The study conducted by Alliance for African Partnership (AAP) in collaboration with University of Botswana has confirmed that despite the government and private sector multi-billion pula entrepreneurship development initiatives, many young people in Botswana continue to fail to grow their businesses into sustainable and successful companies that can help reduce unemployment.

University of Botswana researchers Gaofetege Ganamotse and Rudolph Boy who compiled findings in the 2022 study report for Botswana stated that as part of the study interviews were conducted with successful youth entrepreneurs to understand their critical success factors.

According to the researchers other participants were community leaders, business mentors, Ministry of Trade and Industry, Ministry of Youth, Gender, Sport and Culture, financial institutions, higher education institutions, non-governmental institutions, policymakers, private organizations, and support structures such as legal and technical experts and accountants who were interviewed to understand how they facilitate successful youth entrepreneurship.

The researchers said they found that although Botswana government is perceived as the most supportive to businesses when compared to other governments in sub-Saharan Africa, youth entrepreneurs still face challenges when accessing government funding. “Several finance-related challenges were identified by youth entrepreneurs. Some respondents lamented the lack of access to start-up finance, whereas others mentioned lack of access to infrastructure.”

The researchers stated that in Botswana entrepreneurship is not yet perceived as a field or career of choice by many youth “Participants in the study emphasized that the many youth are more of necessity entrepreneurs, seeing business venturing as a “fall back. Other facilitators mentioned that some youth do not display creativity, mind-blowing innovative solutions, and business management skills. Some youth entrepreneurs like to take shortcuts like selling sweets or muffins.”

According to the researchers, some of the youth do not display perseverance when they are faced with adversity in business. “Young people lack of an entrepreneurial mindset is a common challenge among youth in business. Some have a mindset focused on free services, handouts, and rapid gains. They want overnight success. As such, they give up easily when faced with challenges. On the other hand, some participants argue that they may opt for quick wins because they do not have access to any land, machinery, offices, and vehicles.”

The researchers stated that most youth involved in business ventures do not have the necessary training or skills to maintain a business. “Poor financial management has also been cited as one of the challenges for youth entrepreneurs, such as using profit for personal reasons rather than investing in the business. Also some are not being able to separate their livelihood from their businesses.

Lastly, youth entrepreneurs reported a lack of experience as one of the challenges. For example, the experience of running a business with projections, sticking to the projections, having an accounting system, maintaining a clean and clear billing system, and sound administration system.”

According to the researchers, the participants in the study emphasized that there is fragmentation within the entrepreneurial ecosystem, whereby there is replication of business activities without any differentiation. “There is no integration of the ecosystem players. As such, they end up with duplicate programs targeting the same objectives. The financial sector recommended that there is a need for an intermediary body that will bring all the ecosystem actors together and serve as a “one-stop shop” for entrepreneurs and build mentorship programs that accommodate the business lifecycle from inception to growth.”

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Business

BHC yearend financial results impressive

18th July 2022
BHC

Botswana Housing Corporation (BHC) is said to have recorded an operating surplus of P61 Million, an improvement compared to the previous year. The housing, office and other building needs giant met with stakeholders recently to share how the business has been.

The P61 million is a significant increase against the P6 million operating loss realized in the prior year. Profit before income tax also increased significantly from P2 million in the prior year to P72 million which resulted in an overall increase in surplus after tax from P1 million prior year to P64 million for the year under review.

Chief of Finance Officer, Diratsagae Kgamanyane disclosed; “This growth in surplus was driven mainly by rental revenue that increased by 15% from P209 million to P240 million and reduction in expenditure from P272 million to P214 million on the back of cost containment.”
He further stated that sales of high margin investment properties also contributed significantly to the growth in surplus as well as impairment reversals on receivables amounting to P25 million.

It is said that the Corporation recorded a total revenue of P702 million, an 8% decrease when compared to the P760 million recorded in the prior year. “Sales revenue which is one of the major revenue streams returned impressive margins, contributing to the overall growth in the gross margin,” added Kgamanyane.

He further stated professional fees revenue line declined significantly by 64% to P5 million from P14 million in the prior year which attributed to suspension of planned projects by their clients due to Covid-19 pandemic. “Facilities Management revenue decreased by P 24 million from P69 million recorded in prior year to P45 million due to reduction in projects,” Kgamanyane said.

The Corporation’s strength is on its investment properties portfolio that stood at P1.4 billion at the end of the reporting period. “The Corporation continues its strategy to diversify revenue streams despite both facilities management income and professional fees being challenged by the prevailing economic conditions that have seen its major clients curtailing spending,” added the CEO.

On the one hand, the Corporation’s Strategic Performance which intended to build 12 300 houses by 2023 has so far managed to build 4 830 houses under their SHHA funding scheme, 1 240 houses for commercial or external use which includes use by government and 1 970 houses to rent to individuals.

BHC Acting CEO Pascaline Sefawe noted that; BHC’s planned projects are said to include building 336 flat units in Gaborone Block 7 at approximately P224 million, 100 units in Maun at approximately P78 million, 13 units in Phakalane at approximately P26 million, 212 units in Kazungula at approximately P160 million, 96 units at approximately P42 million in Francistown and 84 units at approximately P61 million in Letlhakane. Emphasing; “People tend to accuse us of only building houses in Gaborone, so here we are, including other areas in our planned projects.”

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Business

Commercial banks to cash big on high interest rates on loans

18th July 2022
Commercial-banks

Researchers from some government owned regulatory institutions in the financial sector have projected that the banking sector’s profitability could increase, following Bank of Botswana Monetary Policy Committee recent decision to increase monetary policy rate.

In its bid to manage inflation, Bank of Botswana Monetary Policy Committee last month increased monetary policy rate by 0.50 percent from 1.65 percent to 2.15 percent, a development which resulted with commercial banking sector increasing interest rate in lending to household and companies. As a result of BoB adjustment of Monetary Policy Rate, from 1.65 percent to 2.15 percent commercial banks increased prime lending rate from 5.76 percent to 6.26 percent.

Researchers from Bank of Botswana, the Non-Bank Financial Institutions Regulatory Authority, the Financial Intelligence Agency and the Botswana Stock Exchange indicated that due to prospects of high inflation during the second half of 2022, there is a possibility that the Monetary Policy Committee could further increase monetary policy rate in the next meeting in August 25 2022.

Inflation rose from 9.6 percent in April 2022 to 11.9 percent in May 2022, remaining above the Bank of Botswana medium-term objective range of 3 – 6 percent. According to the researchers inflation could increase further and remain high due to factors that include: the potential increase in international commodity prices beyond current forecasts, logistical constraints due to lags in production, the economic and price effects of the ongoing Russia- Ukraine conflict, uncertain COVID-19 profile, domestic risk factors relating to possible regular annual administered price adjustments, short-term unintended consequences of import restrictions resulting with shortages in supplies leading to price increases, as well as second-round effects of the recent increases in administered prices “Furthermore, the likelihood of further increases in domestic fuel prices in response to persistent high international oil prices could add upward pressure to inflation,” said the researchers.

The researchers indicated that Bank of Botswana could be forced to further increase monetary policy rate from the current 2.15 percent if inflation rises persistently. “Should inflation rise persistently this could necessitate an upward adjustment in the policy rate. It is against this background that the interest rate scenario assumes a 1.5 percentage points (moderate scenario) and 2.25 percentage points (severe scenario) upward adjustment in the policy rate,” said the researchers.

The researchers indicated that while any upward adjustment on BoB monetary policy rate and commercial banks prime lending rate result with increase in the cost of borrowing for household and compnies, it increase profitability for the banking sector. “Increases in the policy rate are associated with an overall increase in bank profitability, with resultant increases in the capital adequacy ratio of 0.1 percentage points and 0.2 percentage points for the moderate and severe scenarios, respectively,” said the researchers who added that upward adjustment in monetary policy rate would raise extra capital for the banking sector.

“The increase in profit generally reflects the banking industry’s positive interest rate gap, where interest earning assets exceed interest earning liabilities maturing in the next twelve months. Therefore, an increase of 1.5 percentage points in the policy rate would result in industry gains of P71.7 million (4.1 percent increase), while a 2.25 percentage points increase would lead to a gain of P173.9 million (6.1 percent increase), dominated by large banks,” said the researchers.

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