Thursday, April 22, 2021

Sefalana: slump in profits but striking jump in revenue

Sefalana Group’s financial results reflect an increase in revenue but with a decline in profitability in comparison to the corresponding period of the previous year. 

Managing Director, Chandra Chauhan shared Sefalana’s unaudited financial results for the six months ended 31 October 2015 last week with investors and the media. The results who that the Group’s revenue increased by 18 percent, contributed largely by Botswana and Namibia markets, whereas profitability experienced a decline of about six percent. Sefalana operates across three countries which include Botswana, Namibia and Zambia. Chauhan demonstrated through graphical representation the upward sloping revenue trend over the past four years, which he highlighted has doubled between 2012 and 2015.

Zambia’s revenue contribution to the Group paled in comparison to the other two markets; which Chauhan said was due to the volatility of the Kwacha which diluted the Group’s net investment. Foreign exchange volatility was not limited to the Zambian market, as Chauhan also lamented that the Pula declined by 120 percent against the US Dollar, which made it more expensive to buy grain from the US market. The Namibian Dollar’s instability also diluted its contribution to the Group’s revenue. Another challenge that Chauhan alluded to was foreign exchange volatility, together with Botswana’s water and electricity shortages which significantly interfered with production.

“In that regard, Sefalana invested considerably in water and power back up equipment,” said Chauhan.

Delays in the awarding of tenders by government are also another challenge that threatened Sefalana’s profitability.

“We experience a net loss of P2, 5 to P3 million if we don’t produce for government,” he said.

Out of the last six months of 2015, Chauhan indicated that the government tender delay was over a period of four months following which Sefalana received half the tender valued at P100 million. Government buys Tsabana and Malutu from Sefalana. The group’s revenue is largely hinged on its contract/tender business than it is on its core segment of fast moving consumer goods (FMCG). Although Chauhan says the retail segment is “gaining traction” it has only captured 10 percent market share in the FMCG industry. He however anticipates that following the expected store expansion, estimated at about 34 stores, the market share may likely go up to 15 percent bringing them closer to the targeted 20 percent market share. On whether it is sustainable to use the government tender business model Chauhan admitted to Sunday Standard that there is unpredictability, which is however in terms of time delays. He expressed confidence that Sefalana has the competitive advantage because of its capital outlay and cash resources which it has built over the many years that it has been in existence. He was not concerned with competition for government tenders citing that they have built their reputation as a reliable supplier.

“The cost of entry is too high, I don’t think somebody would risk going into business just for government tenders,” he said.

In terms of prices for food commodities Chauhan warned that consumers will start feeling the pinch.

 “We are seeing huge Rand price increases in white maize. There has been a price jump of over 80 percent from R2, 800 to the current R5, 200 which we now have to pay to get white maize from South Africa. It won’t be long before we see P6, 000 as the new price for white maize. However, Sefalana will always try to minimize the price effect,” said Chauhan.

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