Profits at Furnmart climbed 164 percent in the last six months even as revenue grew slightly from last year’s comparable period, in part due to closure of the none-performing operations in the prior year.
The furniture and consumer electronics retailer reported on Friday that profit after tax rose 164 percent to P62.5 million for the six months ended January 2018. The profit was on the back lower interest expense, due to lower borrowing and higher cash reserves.
Furnmart’s earnings also got a boost from the company’s decision to close the Zambian operations, an exercise which is now complete except for the recovery of the remaining debtor’s book.
“The statutory winding up of the Zambian entity will commence subsequent to extracting final value from the debtors’ books. These books have been fully provided for as at the end of January 2018.The operations, with few exceptions, have all performed very well during this period. The remaining non-performing stores will attract further focus from management in an attempt to turn them around,” the company said in a statement.
Total revenue at the retailer was 5.8 percent higher than the prior year at P660 million. While the closure of Zambian operations ultimately improved the bottom-line, the closure of the non-performing operations dampened revenue growth. Likewise, gross profit margins increased compared to the prior period. The comparatives however, also included the low margin closing-down sales of the non-performing operations.
“Operating income of P100 million was 79.2 percent higher than the corresponding period. This improvement resulted from the closing down of some of the Group’s non-performing business units and increased revenue and gross profit margins. Operating expense ratios have improved or were held constant in all continuing business units,” Daniel le Roux, Furnmart’s Managing Director, explained.
Furnmart continued to struggle with debtors’ costs as they leaped 31.6 percent during the period under review after the retailer was hit by an increase in provisions for bad debts. “This increase must be seen against the backdrop of the strong growth in the debtors’ books during this period. Management believes that the impairment provision on the debtor’s book is at an adequate level.”
The buoyant retailer says it will be adding six stores to its already 124 strong stores which span three countries (Botswana, Namibia and South Africa). This will be in addition to the three stores which were added last year. The expansion indicates Furnmart’s appetite to attract more customers in spite of the tough trading conditions.
“Trading in this first half was strong. Management is of the view that trading in the second half of the year will be comparatively less buoyant,” le Roux said. “However, management is confident that the Group will produce earnings growth for the full year as a result of the growth in the debtors’ book, a focus on debtor book quality and cost control.”
The Furnmart boss said management will continue to seek out opportunities for new store growth where appropriate.
“The furniture retail market in Botswana and Namibia remains overtraded and imminent sweeping regulatory changes, in these markets, may present future headwinds.”