It was only a matter of time until the stark reality of the prolonged motions of living from hand to mouth by many ordinary folks immobilised the Fast Moving Consumer Goods (“FMCG”) sector. The cash and carry giant, Sefalana Group, which also plays its hand in the retail sector currently dominated by the Choppies Group, has finally raised a stink about the current state of affairs.
“This year has been one of the most difficult years for Sefalana in quite some time. The economy as a whole has been somewhat depressed and the level of spending, both by Government and the average consumer on the street has fallen significantly. This in turn has had an impact on consumer confidence and difficult trading conditions for not just us in the Fast Moving Consumer Goods (“FMCG”) sector, but also a number of other sectors in the country, where Groups are reporting a drop in earnings,” reads a statement from the company’s financial results for the year ended 30 April 2017 released on the Botswana Stock Exchange (BSE) last week Friday.
This statement is in contrast to the upbeat tone that the company expressed at the beginning of the year when it shared news that it was expecting to enter the South African market in April 2017, a move which was however subject to a due diligence review. The company at the time uttered its confidence that a footprint in South Africa will improve its profitability. This was communicated after the company had successfully raised capital of P351 million through a Rights Issue programme which was completed in December No further announcement regarding the development has been communicated by Sefalana to date but what is apparent is that profitability has taken a dip.The results indicate that profit declined by about 19 percent from the previous corresponding period from P157, 6 million to P128, 3 million. This is despite that revenue increased by 12 percent from P3, 8 million to P4, 3 million. “We are hopeful that this is temporary and that in the ensuing year we will see a level of recovery,” states Sefalana. It notes that to counter the disappointing performance it will in the meantime expand its business with other products and services to its stores “by focusing on the entire supply chain to extract efficiencies, and through continued focus on expansion into the Region where the respective countries are at different stages of their economic cycles.” The previous financial results for the year ended October 31, 2016 were also disappointing, the Group Managing Director Chandra Chauhan had attributed the performance to the challenging economic environment characterised by lower consumer spending. It would appear that the strain deepened as the latest results did not show improvement but rather imploded.
By comparison Sefalana’s cash and carry division depicts a stronger outlook while it is still gaining ground on the retail division. The leading mass retailer Choppies has not given Sefalana a chance to come in par with it. Sefalana recognises the weaker position and admits in the statement that the retail division though experiencing growth still has a mile more to go. “There is still however a lot of progress to be made in this segment and this will continue to be the focus for the ensuing year,” it notes, adding that it looks positively forward to an increase in consumer spending to help support growth in this sector in the ensuing year. It is perhaps worth noting that for consumer spending to increase a rather dramatic upward adjustment of personal incomes has to take place. If the status quo continues companies such as Sefalana may take a hard knock.