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Revenue up but GP down for Sefalana

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Revenue up but GP down for Sefalana
MIXED REVIEW: Chauhan

Group invests R250 million in South African Consortium

Sefalana Group recorded a 13 percent spike in revenue upwards of P2 billion and a two percent increase in its Profit Before Tax (PBT) that stands at P83.1 million.

However, despite these positives, the group has registered an eight percent decline in Gross Profit (GP), which currently stands at P139.4 million.

These figures were disclosed by the Sefalana Group Managing Director, Chandra Chauhan at the Group’s presentation of the Unaudited Group Financial results for the six months ended 31st October 2017.

Chauhan noted that though the Group realized some difficulties in generating GP, as of July 2017 they concluded a R250 million investment into a South African Consortium.

The investment will earn the Group a fixed annual return of R50 million for five years, after which they will have the option to convert the investment into a 30 percent equity stake in the consortium.

“We have been working on this transaction for over 18 months and had to ensure it was structured in a manner suitable for us,” said Chauhan, who revealed that the consortium involves experienced players in the Fast Moving Consumer Goods (FMCG) market in South Africa.

He explained that the aim of the consortium is to acquire a number of existing chains and grow the store compliment to become a significant business within a 10-year period.

“The reported results, therefore, include P12.8 million income pertaining to this investment. This has been recorded under ‘Investment Income” within the inter-segment category,” continued the Group Managing Director.

Chauhan further revealed that the Group’s Mechanised Farming (PTY) Limited (MFL) operation has been shut down due to non-profitability.

The unit, which procured farming tractors and ploughs for the local farming community, contributed seven percent to the Group’s turnover and profit before tax.

“This is, therefore, a relatively small Group segment,” he added.

Chauhan noted that MFL continued to bear the strain of limited rainfall during the period, a situation that has negatively impacted the entity’s performance resulting in the Board’s decision to rationalise some of the activities of the business.

“Focus will now be on the supply of equipment to Botswana Railways and the supply of wholesale farming and electrical equipment rather than on walk-in retail trade,” said Chauhan, who added that the move is in line with the Group’s strategy to focus on the core activities of operation and to downscale less profitable areas of the business.

The Sefalana Milling division, which falls under the manufacturing segment of the Group, Foods Botswana (PTY) Limited (FB), is reported to be holding its own, supplying the Government with Tsabana and Malutu whilst producing for the Group’s A-Star retail products.

FB is noted to have achieved a greater level of profitability as compared to the previous period.

Chauhan explained this was due to short-term orders placed by Government combined with growth of the Sefalana house brands within the Beverages division.