Metro Namibia has again anchored Sefalana Holdings, accounting for 32 percent of the group’s profit before tax in the 12 months ending April 2021. As a result, the group’s reported profit before tax of P290 million, on the back of reporting its best ever profit before tax for the half year ended 31 October 2020 of P149 million.
However, the half-year results were boosted by Botswana.
On a full year comparison, Namibia contributed the most profit before tax. While trading consumer goods for the retailer in Botswana generated over half of the group total revenue in the 12 months ending April 2021, profit before tax accounted for 27 percent, weighted down by administration expenses of P79.4 million.
In Namibia, turnover of core business amounted to P2 billion, a growth of 17 percent on the prior year. Profit before tax amounted to P87 million, up an impressive 63 percent from the prior year. The group’s MD Chandra Chauhan explained that this included the impact of a positive foreign exchange movement.
“Our operations in Namibia continue to grow despite evidence of stress in the economy, largely through margin focus and cost curtailment,” he said, adding that this business continues to make a significant contribution to overall Group results each year.
At the start of the year, Chauhan disclosed that Sefalana had 21 stores across Namibia. During the period, there were no new store openings. “We have now met our medium-term target of 20 stores and we will look at new locations only if the sites are exceptional,” he said in the results published on the Botswana Stock Exchange Limited (BSEL) recently. “Growth will be cautious, given the economic environment. We believe the current store complement is adequate to generate a respectable level of return for the full year. This business was the single largest contributor to Group profits for the year.”
Locally, Chauhan said the impact of COVID-19 restrictions on core business of trading consumer goods became apparent and continued into the current financial year. Whilst consumers have begun to visit stores more often than during the initial phase of the pandemic, it is not yet at the levels they have seen in the past.
“The consumer is still somewhat cautious and tends to focus more on necessities rather than luxuries,” Chauhan said. “The desire for a one-stop shop is very much apparent and we have responded accordingly through offering a wider variety of goods and services in-store.”
The most significant negative impact experienced predominantly during the first half of the financial year on this business unit were the restrictions on liquor sales which had been in place for the entire six month period. According to the retailer, this resulted in approximately P8 million of lost profit during that period.
Restrictions were lifted during the second half of the financial year as the liquor industry as a whole had been deeply affected. Whilst liquor sales have not normalised yet, Chauhan said the adverse impact was reduced to around P5 million in the second half.
“In order to make shopping easier for our customers, we relaunched our online offering through the popular Yamee application (previously MyFoodness),” he explained. “We offer both groceries and liquor through this medium and will look to introduce additional offerings in the coming year, including fruit and vegetables.”
He added that customers are keen to purchase online and that the number of customers in this space increases every month. “Phone orders and WhatsApp orders are also accepted from customers who had become used to this facility during the lockdown,” Chauhan noted.
The FMCG business during this year looked for alternative ways to improve margins and maximise bottom line profits. More aggressive buying activity and basket mix optimisation, along with overhead cost reductions, helped contribute to the overall strong performance, said Chauhan. “We are now looking to roll out solar panels in many of our larger stores where additional savings can be made and this continued into the current financial year,” he noted.
In Botswana, Sefalana Cash & Carry Limited contributed 54 percent and 27 percent of the Group’s revenue and profit before tax for the year, respectively. Turnover amounted to just under P3.4 billion, which was up a meagre 2 percent on the prior year. But given the significant drop in liquor sales, Chauhan said they are very pleased with this overall result.
In the previous period, Sefalana Cash & Carry contributed 57 percent and 26 percent of the group’s revenue and profit before tax for the year, respectively. Turnover amounted to just over P3.3 billion, which was 13 percent up on the prior year. During that period, the local FMCG picked up the slack of the Namibian operations after the economic strain in the country which resulted in less growth than the previous years.
Metro Namibia contributed 29 percent and 21 percent of revenue and profit before tax for the year, respectively. Turnover amounted to P1.7 billion, a growth of five percent on the prior year after negative impact of the currency conversion, which was 13 percent down from the prior year. At that time, the group had only 17 stores across Namibia.
Before Namibia rose to glory, Botswana’s FMCG sustained Sefalana. In 2019, Sefalana Cash & Carry Limited was contributing 55 percent and 30 percent of the Group’s revenue and profit before tax for the year, respectively. Turnover amounted to P2.9 billion, which was 15 percent up on the prior year. In the meantime, the economic strain in the Namibian economy continued, and the group noted lower growth in the FMCG sector.
Metro Namibia accounted for 31 percent and 24 percent of revenue and profit before tax for that year, respectively. Turnover amounted to P1.6 billion, a growth of 5 percent on the prior year. Profit before tax amounted to P61 million, up 13 percent from the prior year. The group focused on enhancing customer engagement and offering working towards its medium term target of 20 stores.
From humble beginnings in Namibia, Sefalana generated a mere P7 million seen in 2014 to P53.8 million registered in the full 12 months ending April 2018. This was Namibia’s best results ever, and for the first time ever, the business in that country outperformed Botswana’s FMCG business, albeit by a negligible margin. Namibia accounted for 23.2 percent of pre-tax profits while Botswana stood at 22.7 percent.
Sefalana’s trading consumer goods are currently all profitable except in Australia. The group entered the Australian market through a 40 percent investment in an associate company that operates in the FMCG sector in 2020. The Australian business, by the name of Seasons Group, consists of a chain of eight supermarkets in the Brisbane area. Chauhan said performance from this business is broadly in line with plans and is already generating positive earnings before interest, tax, depreciation and amortisation (EBITDA) in its first year.
“The return on this investment will be seen in the medium to long term,” said Chauhan. “During the short term, our presence in the market is increasing as we move towards achieving our target of 12 stores which will provide the critical mass to optimise on economies of scale and profitability.”
Lesotho is out of the woods. As at April 2021, profit of P7 million was generated compared to P1 million in the prior year. The group has been operating in Lesotho for over five years now and is the leader in Cash & Carry. Lesotho has had its fair share of troubles. In 2018, the first-year trading losses of Sefalana’s second store in Maseru resulted in an overall loss reported by this segment. Turnover of P439 million had been achieved for the year, contributing 8 percent of total Group revenue.
In South Africa, preference share arrangement in South Africa is due to mature in July 2022. Sefalana said a decision will be made prior to 31 December 2021 regarding appetite to convert this preference share into a 30 percent equity investment or to simply redeem this investment. “There are a number of moving parts to consider and we will notify shareholders in due course on further developments as they arise,” said Chauhan.