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Currency translation shrinks Turnstar margins

Publishing Date : 09 July, 2018

Author : REARABILWE RAMAPHANE

Botswana’s home grown billion pula property group, Turnstar Holdings has posted significant decline in profits after tax. According to the Botswana Stock Exchange listed property outfit annual report released this week, the Group recorded profits after tax of 73,193,705 during the 12 months period ended January 2018 compared to 237,724,816 during the period ended January 2017.


Turnstar Managing Director, Gulaam Husain Abdoola highlighted that during the period under review the US Dollar significantly depreciated against the Botswana Pula. “This has adversely affected the Group results for the year ended 31 January 2018,” he said. Abdoola also observed that the translation loss reported for the year ended 31st January 2018, occurred when translating the US Dollar denominated investments and other financial assets of the Group’s Tanzanian subsidiary, Mlimani Holdings Ltd to Botswana Currency.


 “The subsidiary reports in US Dollar currency; whilst the Group’s functional currency is Botswana Pula.” Approximately 43% of the Group’s total rental income is in US Dollars. During the period under review Tunstar reported full year distribution of 18t per linked unit. The Group distributed P103 m for the year, despite the challenges experienced, however this was low compared to P114.4m distributed last year, “The Net Asset value per linked unit is strong at P 2.73 per linked unit,” underscored the MD.  


Furthermore the group has recorded a 1.5% share price appreciation and 5% income return from distributions, a total return to investors of 6.5% for the 2018 financial year. The Turnstar MD also observed that the Botswana regulatory challenges on the side of their clients affected their cash flow negatively, “As reported last year, we assumed that the trading license issue in Botswana had been resolved. It seems that was not the case as it continued into this year. These issues delayed the leasing of the new wing of Game City.


We could no longer hold the stores for the tenants who had signed pre leases but could not obtain their Trading Licenses.” The MD further added that this resulted in Turnstar having to lease the stores to new tenants and the latter were afforded a period of beneficial occupation before paying rent.  In turn, rental revenues for the affected stores were only received during the last few months of the financial year under review. However the MD noted that by the end of January 2018 the company had achieved an approximate 97% tenancy ratio in our Botswana properties.


In Tanzania, the delay in the completion of construction resulted in a delay in the leasing of the new developments. The current downturn in the economy has affected the Mlimani Commercial Office and Conference Centre revenues. The shifting of the country’s capital to Dodoma caused a surplus of office space in Dar es Salaam. “This has adversely affected the occupancy of the commercial office blocks at Mlimani City. However on a positive note, the retail shopping mall, including the new wing, is fully tenanted and operating at full capacity by end of year under review.”


Amid operating challenges, Tunstar still remains the largest amongst Botswana listed Companies in terms of asset value. According to Grant Thornton, Turnstar financial auditors, the Group footprint in Africa and the Dubai region exposes the Turnstar to foreign exchange risks arising from various currency exposures, primarily with respect to the US dollar. “Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities and net investments in foreign operations,” noted the auditor.


The Group owns subsidiary companies which hold investment properties in Tanzania and Dubai and is accordingly exposed to foreign exchange risk in respect of financial assets and liabilities that are not in the Group's functional currency which is the Botswana Pula. Grant Thornton also highlighted that during the period under review the group has not hedged the foreign exchange fluctuations arising from net investments in foreign operations.


If as at January 31 2018, the currency had strengthened by 10% against the US dollar with all other variables holding constant, pre-tax profit for the year would have been  P 28 380 819  higher mainly as a result of foreign exchange gains on translation of US dollar denominated financial assets and borrowings.

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