Tuesday, September 22, 2020

Furnmart’ efforts to diversify business model failed

BY BONNIE MODIAKGOTLA

Diminished future growth, zero appetite for capital and new rules – these are some of the reasons given by Furnmart on its decision to delist from the Botswana Stock Exchange after 20 years of listing.

In a media briefing Tuesday on the wake of the news that the local furniture retailer was delisting, it was announced that the past years have slowed down the company’s growth, and future prospects are not looking great either. Furnmart had to exit the Zambia market when it was dragging the group’s performance, and when the ship was just turning the corner, it was hit by another heavy tide in the form of envisaged regulations that protect consumers from too much credit.

“The credit furniture retail business has been in turmoil over the past decade with well-known regional competitors either closing down or reducing the number of stores. The business model has been under severe pressure in challenging regulatory environments and attempts by Furnmart to diversify both regionally and in terms of the business model have not yielded the growth opportunities that we have been looking for,” Tobias Mynhardt, the company deputy chairman, said.

Mynhardt explained that opportunities for growth together with limited demand for Furnmart shares meant that there is no need to raise capital, and even if they could there are no real benefits to the company remaining listed. Further complicating the matter is the new BSE regulations that requires free float of at least 30 percent, something the company is not intending to satisfy. Therefore, delisting is a natural and obvious step for the company, he said.

Furthermore, the retailer is troubled by the decline of the share value, losing about 76 percent of its peak market value between august 2014 and October 2018. The company also took issue with the illiquidity of the stock ÔÇô only 3.04 percent of all shares was traded in the past six years, and only 0.02 percent from the start of the year up to now.

“We listed on the BSE to raise capital for a regional thrust in key markets being Botswana, Namibia and South Africa. The strategic intent was to expand from home markets to the rest of Africa. Over the course of the last six years our stock has been illiquid in the market with trade of our shares being less than 3 percent of those in issue. This to some extent has inhibited our market capitalization,” said Mynhardt.

While growth prospects for furniture retailers looks blighted, Mynhardt was unequivocal that they will not be changing their business model anytime soon, and that no jobs will be lost post the delisting. He reserved special praise for BSEL for understanding the company’s decision to delist ÔÇô which came after consultation and approval between the two parties.

Mynhardt, who is also managing director New African Properties – a BSEL listed property company, said shareholders are free to trade their stock on the BSE between now and the planned delisting in January, whilst those who wish to continue as shareholders in an unlisted entity may do so.

“In terms of BSE listing rules, investors have to be offered an exit mechanism for those who do not wish to hold unlisted shares. As such, Furnmart itself is offering to buy those that up until now have not been able to sell their shares. This gives many of our shareholders an opportunity to exit at a price 20 percent higher than where the share has been trading for more than a year,” revealed the deputy chairman.

Mynhardt advised that those who want to trade post delisting will use different investor criteria for evaluation and negotiation and would need to consider tax and other investment aspects of unlisted equities. “Delisting does not mean letting go of governance as the board and its committees will remain intact and our auditors will continue with our books post listing. Apart from not being listed on the BSE, business will continue as normal,” he said.

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