Segmental Reporting

Basis of preparation and accounting policies

The abridged consolidated financial results of Sefalana Holding Company Limited and its subsidiaries (“Sefalana” / the “Group”) are extracted from the Group financial statements that have been prepared in accordance with International Financial Reporting Standards (“IFRS”), under the historical cost convention except for the revaluation of certain non – current assets being land and buildings, investment in properties, and preference shares, which are carried at fair value.

The accounting policies applied in the preparation of the audited financial statements for the year ended 30 April 2021 (the “year”), are consistent with those applied in the preparation of the audited financial statements for the year ended 30 April 2020 (“prior year”).

Going concern

The Directors have reviewed the Group budgets and cash flow forecasts for the year to 30 April 2022 and the period 1 May 2022 to 31 July 2022. On the basis of this review, and in the light of the current financial position, existing borrowing facilities of the Group and the effects of Covid-19, the Directors are satisfied that the Group is a going concern and have continued to adopt the going concern basis in preparing the financial statements.

Financial results of the Group – overview

For the last 10 financial reporting years, with the exception of the April 2017 year end, we have consistently reported improved results each and every year. We are extremely pleased to report once again, our best ever results to date, despite the challenges we have been facing.

We generated a profit before tax (“PBT”) of P290 million! This is on the back of reporting our best ever PBT for the half year ended 31 October 2020 of P149 million.

Although it has been a challenging year during which the Pandemic has remained an obstacle and distraction for business and economic growth, we have tirelessly and actively worked to overcome these challenges, through finding new ways of doing business; and maintaining and growing market share wherever possible in each of our segments.

Our Group had put in place measures as early as November 2019 to prepare for the unknown impact of the Pandemic, and this has helped us prepare and navigate through these difficult times. On an on-going basis we look at ways in which we are able to mitigate these adverse impacts, for example by providing our customers with alternative ways of shopping, or by offering a wider range of products and services.

We also endeavour to continually deliver and exceed expectations of our various stakeholders through careful planning and execution of operational matters. We have managed to do this through dedication and perseverance by our motivated teams across the business. We are pleased to report that we did not retrench any of our staff during the Pandemic and ensured all our staff throughout the Group were fully paid. We also applied pay increases wherever possible to assist our staff during these troubled times.

Our greatest strategic focus has been for some time now, on the core Fast Moving Consumer Goods (FMCG) business where we have placed considerable efforts to enhance margins and relative contribution to Group results. This has applied not just to Botswana but also to Namibia and Lesotho. As a result these sectors have done well during the year and have contributed 60% of the Group’s reported PBT.

Our Namibian business has done particularly well this year and has remained strong despite the local economy taking some level of strain. Through improved in-store offering and gaining further market share, this segment has contributed 30% of the Group’s PBT for the year.

Our manufacturing operations which support the FMCG businesses have performed well and further expansion is expected in the coming 12 months with certain projects being considered and evaluated.

We have also benefited from the third tranche of returns from our South African investment which is performing broadly in line with plan. The fourth tranche was received subsequent to the year end on 1 July 2021. The five-year period relating to this preference share investment ends in July 2022. Further details to follow later in this report.

Our expansion into Australia

As previously reported, and effective 7 May 2020, we entered the Australian market through an investment in a 40% associate company that operates in the FMCG sector. The Australian business, by the name of Seasons Group, consists of a chain of eight supermarkets in the Brisbane area. Total purchase consideration for Sefalana’s investment in this business amounted to AUD 10.5 million (P83 million), which is considered its fair value. Performance from this business is broadly in line with plan and is already generating positive earnings before interest, tax, depreciation and amortisation (EBITDA) in its first year.

The Australian market is accustomed to relatively long lease periods of 15-20 years and in accordance with IFRS 16 – Leases, the Right of Use Asset and related Lease Liabilities are therefore significant. This results in a front-loaded depreciation and interest charge in the earlier years of the leases. As a consequence, the positive EBITDA of AUD 4.7m (P39 million) has been eroded by related lease charges. In the latter lease period however, this is expected to unwind, such that the reported PBT figures for this investment will grow significantly. This is aligned to our intention to re-invest in that business for the first five years before dividends are declared to shareholders.

The return on this investment will be seen in the medium to long term. 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 optimize on economies of scale and profitability. The Group’s share of losses, which includes once-off startup costs relating to this associate, amounted to P5.5 million for the year.

The performance of each segment is expanded upon in more detail later in this report.

Financial highlights

For the year ended 30 April 2021, the Group’s:

Revenue was P6.3 billion – up 8% on prior year;

Gross profit was P454 million – up 17% on prior year; Earnings before interest, tax and amortization (“EBITA”) was P279 million, up 18% on prior year;

Profit before tax was P290 million – up 12% on the prior year; and

Final dividend of 30 thebe per share to be paid to our Shareholders

The Group’s business and geographical segments are reported separately. Inter-segment transactions are eliminated, and costs of shared services are accounted for in a separate (“Inter-segment or Unallocated”) segment. All transactions between segments are at fair value and arm’s length.

Review of operations Botswana Business units - 61% of Group profits

Overall Botswana business units have generated P177 million of PBT for the year, up 31% on the prior year. From the three main territories in which we are present, this location has experienced the greatest impact of the Pandemic. We have done exceptionally well this year to combat this.

Trading – consumer goods

In the latter half of the previous financial year the impact of Covid-19 restrictions became apparent and this 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 we have seen in the past. The consumer is still somewhat cautious and tends to focus more on necessities rather than luxuries. 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, was the restrictions on liquor sales which had been in place for the entire six month period. 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 normalized yet, the adverse impact was reduced in the second half to around P5 million.

In order to make shopping easier for our customers, we relaunched our online offering through the popular Yamee application (previously MyFoodness). We offer both groceries and liquor through this medium and will look to introduce additional offerings in the coming year including fruit and vegetables. Customers are keen to purchase online and 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 lock-down.

The FMCG business during this year, looked for alternative ways in which to improve margins and maximise bottom line profits. More aggressive buying activity and basket mix optimization, along with overhead cost reductions helped contribute to the overall strong performance. We are now looking to roll out solar panels in many of our larger stores where additional savings can be made.

Sefalana Cash & Carry Limited contributed 54% and 27% of the Group’s revenue and PBT for the year, respectively. Turnover amounted to just under P3.4 billion, which was up 2% on the prior year. Given the significant drop in liquor sales, we are very pleased with this overall result.

At the beginning of the financial year, Sefalana Cash & Carry operated four Hyper Stores (“Sefalana Hyper”), 25 Cash & Carry stores (“Sefalana Cash & Carry”) and 29 supermarket retail stores (“Sefalana Shopper”) across the countr giving the Group a total of 58 stores in Botswana. In th first half of the financial year, we expanded our nation footprint through the opening of an additional Sefalan Shopper retail store in Shakawe, a Sefalana Liquor outle in Tlokweng, and a refurbishment of our Sefalana Shoppe Molepolole store. In the second half of the year we furthe expanded our presence with a Sefalana Shopper in Sebin and Metsimothlabe. This created close to an additional 30 jobs. In May 2021 we opened a Sefalana Shopper in Ramotsw and look forward to our second Sefalana Shopper “The Bi One” at Molapo Crossing in August. This will bring with it a additional 180 jobs.

We remain committed to giving back to the Communit For the third year running, as part of our annual birthda promotion, our Cash & Carry business gave away 29 mobil kiosks empowering Batswana to start their own businesse Total cost of these kiosks amounted to just under P2 millio We are proud to have empowered local entrepreneurs to ru their own businesses. Our Retail birthday promotion focuse on giving away P1.8 million in the form of cash. This generate a lot of excitement in the market as we found a number of ou retail customers preferred cash rather than prizes in kin With total prizes amounting to just under P4 million, this i one of our largest annual customer engagement events.

As expected, our Sefalana Catering division was impacte adversely by the restrictions placed on the Hospitalit sector during the Pandemic. This division focuses on servin an end-to-end solution to that industry with ambient an frozen foods in wholesale size units. This business offer over 2,000 additional different product lines not previousl sold within the Sefalana group and is expected to make sizable contribution to the Botswana FMCG business in th next three years as soon as the impact of the Pandemic i behind us and tourism and entertainment businesses ar normalized.

Our Fruit and Veg business that procures and supports th Botswana FMCG businesses has performed exceptionall well this year. Improved quality and pricing have enhance our overall in-store offerings. This business has dramaticall improved performance ever since it became a fully owne subsidiary company from its previous joint venture status.

Overall a very pleasing performance by this division in th context of the difficult trading environment.

Trading – others

This segment which consists of Commercial Motors (Pty Limited (“CML”) and Mechanised Farming (Pty) Limite (“MFL”) contributed 1.5% and 1% to Group turnover and PB respectively. This remains a relatively small Group segmen in line with our focus on the core business of FMCG.

CML historically relied on tender business, and over recen years has been focusing on growing its private sales as result of a general decline in tenders. During the current yea the business secured the sale of a number of vehicles to th private sector to mitigate against the reduced tender activit Activity was however significantly below our expectation due to the reduced appetite for new vehicles during th uncertainty introduced by the Pandemic.

We are in the process of relocating our Dealership to th previous Nissan site next to our Head Office in Broadhurs This is a more prominent location that will provide addition visibility for our brands.