Thursday, October 29, 2020

Regional expansion keeps Sefalana going

One of the country’s major players in the fast-moving consumer goods (FMCG) sector – Sefalana had no option but to pin its hope on foreign markets as trading conditions in Botswana posed challenges during 2019.

The group’s regional stores have boosted its overall performance as it exceeded the P2.8 billion turnover threshold.

The groups’ latest financial results for the six months ended 31 October 2019 shows that it generated a profit before tax of P121 million representing a 17 percent increase compared to the prior period.

In the past Sefalana identified key risks in the domestic company to be government and consumer spending. Sefalana’s manufacturing business rely significantly on government tenders which are not only short put poses risks to the business as the sustainability of the manufacturing largely depends on winning these tenders.

The group executives said at the time that with the economic challenges experienced in the local market, Sefalana’s diversification into neighbouring countries over the last five years has helped smooth over the shocks to maintain the group’s overall performance.

HERE IS HOW THE GROUP PERFORMED

Diversification into other regions brings with it foreign exchange exposure. For the period, Sefalana recorded a retranslation loss of P17.2 million largely relating to the Namibian, South African and Lesotho businesses which are all South African rand (ZAR) denominated. This compares to a loss of P45.2 million in the comparative period. The ZAR constantly fluctuates and therefore these retranslation gains and losses are largely temporary, and are recorded in other comprehensive income and losses.

For its Namibia operations, Metro Namibia contributed 30 percent and 23 percent of revenue and profit before tax for the period, respectively. Turnover amounted to P850 million, a growth of 7percent on the prior period, with profit before tax amounting to P28 million, up 13percent from the prior period.

The Botswana stock exchange listed retail operator has also benefited from the second tranche of returns from its South African investment which is performing broadly in line with plan.

Sefalana invested into a South African consortium in 1 July 2017, where under this transaction, Sefalana invested R250 million and earns a fixed annual return of R50 million for five years, after which point we will have the option to convert this investment into a 30 percent equity stake in the consortium. The consortium has been established with experienced players in the FMCG market in South Africa. The aim of the consortium is to acquire a number of existing chains and grow the store compliment such that this is a significant business within a ten-year period. So far, the group has indicated that this consortium is performing well and that almost three years into its operations, the future prospects still remain very positive. The reported results therefore include P19.3 million of income pertaining to this investment.

The Consortium currently owns 16 stores across the country which are well located in areas where there is a strong population to support its trade.

For its Lesotho operations which is now been four years, business has remained strained as a result of the persistent pressure on margins. In this market, turnover of P226 million has been achieved for the period, contributing 8 percent of total group revenue.

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