FURNMART TURNAROUND STRATEGY PAYS OFF

FURNMART TURNAROUND STRATEGY PAYS OFF

Turnaround aggression, improved foreign exchange (FOREX) complemented by an exit from Zambia has reduced Furnmart Ltd’s exposure to the currency fluctuation, combinations of ‘better management’ which market watchers feel make for meaty profits.

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Turnaround aggression, improved foreign exchange (FOREX) complemented by an exit from Zambia has reduced Furnmart Ltd’s exposure to the currency fluctuation, combinations of ‘better management’ which market watchers feel make for meaty profits.
The retailer is fresh from a round of strategies that culminated in turn-around for non-performing stores and cessation of other unprofitable business units to stem the losses of the group. Until this year, Furnmart operated in 3 markets outside Botswana: South Africa, Namibia and Zambia. The group wound up Zambian operations as part of a strategy to control losses.  With the exit from Zambia, most analysts feel the retailer, which operates Home Corp is less exposed to volatile currencies. The group is exposed to the Rand and the Namibian Dollar.

Last week, Daniel Servaas le Roux, the group Managing Director (MD), on behalf of the Board of Directors advised shareholders to exercise caution when dealing in ordinary shares of the company, until full announcement of the results which he hinted will be up, is made-anytime between now and October 31st. In the fiscal year 2016, the group’s profits were down by almost 15 percent, from the previous corresponding period. Management linked the pallid performance to currency fluctuation.

Furnmart retailed domestic furniture and electrical appliances through its network of stores in Botswana (the reporting currency), South Africa, Namibia and Zambia. The group stopped operating in Zambia on the back of tough trading conditions ranging from devalued currency and bad economic number driven by poor copper uptake which is the mainstay of the economy. Like any other market highly dependent on a single or two commodities, Zambia endured a tumultuous 2016 as a result. “Furnmart’s decision to exit the Zambian market was not only based on currency volatility but on continued trading losses, a weakening economy and US Dollar-based rentals,” Antwi Kwabena, an Investment Analyst at Kgori Capital opines.

The company began winding up the Zambian operations on the 1st of November 2016, confident that this will have a positive impact on future profitability of the company.
Without explaining further, Daniel Servaas le Roux said in his statement that profit after tax for the year ended 31 July 2017 will be higher than that P47, 7 million reported in the previous corresponding period.

Tshephang Loeto, a Financial Analyst at Investec Asset Management suggests that the improvement in financial performance improved foreign exchange rate and also a function of lower base of earnings. In other words, he says with lower earnings it’s easy to report growing profits. “They were in Zambia during bad times, and the exit from Zambia also reduced exposure to currency volatility.”

In the full year 2016, exchange loss hit P16, 9 million, higher than the previous year’s P12.8 million loss before reducing considerably in the second half. The group embarked on measures to minimize losses from the Group’s non-performing business units. Loss-making branches were closed, and where viable, management said non-performing stores would be subjected to turned-around. “Furnmart is also better managed,” Loeto opines.
In its January 2017 interim results release, forex movements amounted to a gain of P6,3 million versus a loss of P45, 2 million recorded in January 2016, months after exiting Zambia. This gain was the result of the weakening of the Pula against the Group’s other functional currencies with Profit after tax of P23.7 million, P28.1 million higher than the previous year.

Kwabena says the expected higher profit after tax is most likely due to the stable exchange rate of the Pula versus Furnmart’s other functional currencies i.e. the South African Rand and Namibian Dollar. “Furnmart’s exit from Zambia may also have been a contributor to the expected positive set of results.”