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Furnmart Zambian exit pays off

Publishing Date : 07 May, 2018

Author : TSHEPISO GABOTLHOMOLWE

After announcing an exit from the Zambian market in the 2016 financial results, Furnmart Holdings’ exit has had a positive impact on the 2018 half year results.


 The 2016 results reflected that the closure of the group’s operations in Zambia had an effect on its profits. This though has not affected the newly released unaudited half year financial results for a period ending January 31 2018 results. A year and a half later, the decision to shut down the Zambian market still a say on the Group’s results. The Furnmart Group through its 2016 annual report explained that exiting the Zambian market was a disruptive process that required considerable focus and effort from management.


With the exception of the remaining debtors’ book the management confirmed then that all assets in the Zambian operations have been realised. The statutory winding up of the Zambian entity will commence subsequent to extracting final value from the debtors’ books. These books have been reported to have been fully provided as at the end of January 2018.The operations, with few exceptions, are reported to have all performed very well during this period. However, they noted these actions will have a positive impact on the Group’s profitability in future.


On a comparable basis the group results show that revenue increased by 12.4 percent. 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 P100.0m was P44.2m an equivalence of 79.2 percent higher than the corresponding period. Even so, it is evident that the furniture retail market in Botswana and Namibia remains overtraded and imminent sweeping regulatory changes in these markets may present future headwinds.


The furniture retail industry continues to consolidate, particularly in South Africa, where store closures occurred across the board. As a result, to maintain growth, the South African furniture retailers maintained their expansion drives into Africa and are becoming more competitive in the territories where the Group traditionally dominated.


The regulatory environment for consumer credit providers is becoming increasingly challenging and complex as regulatory bodies introduce more restrictive laws, regulations and limitations in an attempt to protect consumers from high levels of indebtedness or exploitation by credit providers.


Furnmart, with a market capitalization (Market Cap) of 327.48M has realized Revenue of P660m for the just ended period which is 5.8 percent higher than the prior year. The growth in revenue is explained to have been partially offset by the closure of the non-performing operations included in the prior year.


On a comparable basis the group results show that, revenue increased by 12.4 percent. 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 P100.0m was P44.2m an equivalence of 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. Total debtors’ costs have increased by 31.6 percent during the period under review. The management under the Chairmanship of JT Mynhardt has cited that increase will most likely 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. Supported by a lower interest expense, due to lower borrowing and higher cash reserves, produced a profit after tax of P62.5m, which is P38.8m 164.0 percent higher than the previous year. The group’s revenue for the half year has been registered 36 million more than the corresponding period ending January 2017. The Group has confirmed and presented a very strong first half year.


The financials show that Furnmart strives to establish lasting relationships with its customers through the value for money and smart credit policies. Management is of the view that trading in the second half of the year will be comparatively less resilient. 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 which will highlight a focus on debtor book quality and cost control. It is further noted that opportunity seeking is on the plan to ensure a wide spread footprint. It is further explained that efforts to seek out opportunities for new store growth are appropriate.


The remaining non-performing stores will attract further focus from management in an attempt to turn them around. The Group opened three new Furnmart stores during the period under review and is now trading out of 124 stores in three countries. Management has noted that they will be opening another six stores during the current financial year.

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