This year, investors will be paying close attention to two big factors that could impact Sefalana Holdings' earnings:
The proposed P4,000 minimum wage
Changes in Botswana’s foreign currency mix
Sefalana typically pays out 50% of its earnings as dividends, so any shift in profits could directly affect shareholder payouts.
P4k Minimum Wage:
Sefalana’s employment count:
Sefalana employs almost 8,000 people across four countries—Botswana, Namibia, Zambia, and Lesotho. The majority of these workers, who will be affected are based in Botswana.
The Cost of Change:
If the P4,000 minimum wage goes into effect, Sefalana’s costs could jump by a massive P180 million each year, according to MD Chandra Chauhan.
What Does This Mean?
More expenses = less profit. All else being equal, this means there could be less money left to share with Sefalana’s investors. Basically, this wage change might impact how much the company can reward its shareholders.
Scenario:
In the 12 months leading up to April 30, 2024, Sefalana made a profit of P330.5 million.
Impact on profit:
After factoring in an estimated P180 million impact, the company’s profit drops to approximately P150 million.
Earnings outlook:
This suggests that Sefalana may earn much less than initially expected in the future.
Mitigation strategy:
Sefalana, alongside other private companies, is lobbying for a slower implementation of the new wage policy over five years.
The goal is to reduce the financial strain on the company and its operations.
Alternatively, the FMCG outfit would likely consider reviewing pricing in store to absorb the larger payroll; or
In the worst case scenario, reconsider the size of its workforce
Inflation’s Mixed Impact:
Higher wages could lead to increased prices (inflation).
Industry dynamics:
FMCG sector, which is Sefalana’s core business, typically performs well in such times as long as they can buy at lower prices and sell at higher prices.
Price sensitivity:
Chauhan is aware that consumers are becoming more price-sensitive due to ongoing financial and environmental uncertainties. This change in behavior has negatively impacted the group’s profit margins recently.
FX Policy Changes:
Recent adjustments make the pula’s movements against the rand less pronounced, reducing Sefalana’s ability to benefit from exchange rate shifts like it used to.
Monthly outgoing payments:
Managing costs:
The company uses favorable exchange rate movements to negotiate better terms with suppliers, using spot or forward contracts. This helps lower expenses.
The group prefers a sligthly weaker rand to benefit, however forecasters expect to Pula to be weaker.
Limited opportunities:
o Despite continuing to look for opportunities, Chauhan notes that the new foreign exchange rules have limited Sefalana’s options.
Comments