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Botswana: G4s Security Revenue Up
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The Voice (Francistown)
6 May 2008
Posted to the web 6 May 2008
Moses Maruping
Francistown
The security services group, G4S Botswana has released good results with the company's revenue growing by 14.7 % to P90.3 million for the year ended 31 December 2007.
According to Stockbrokers Botswana research, the good results are attributed on the back of growth in some business divisions.
The company which provides security solutions by way of integrated security services comprising both human resources and technical products' cost of sales was up to 24.5 % to P52 million, with gross margins down 4.5 percentage points to 42.2% making its earnings per share (EPS) to rise by 12.6% to P1.79 from the previous P1.59.
Stockbrokers Botswana Chief Executive Officer, Geoffrey Bakwena said cash services continued to dominate the contribution to pre-tax profits as the division contributed about 43 % followed by alarms at 37%.
Bakwena said new alarm sales showed an improvement in the year backed by the improvement in the level of disposable income in the economy.
In the division of integrated services, which include manned security, Bakwena said the division contributed about 18% to pre-tax profit.
"This division is expected to help drive revenue in the medium to long term."
He said the company's management are of the view that its growth potential lies in integrated services, especially manned guarding and cash services.
However, Bakwena noted that the major challenge to this is inflation and lack of experienced supervisory skills as the division is management intensive.
He however noted that the recent civil service salary increment will boost the level of disposable income and possibly drive volumes.
The company which is listed on the local bourse-Botswana Stock Exchange (BSE) currently has about 13,000 alarms under monitoring, and has contributed 37%, about P6.5 million to earnings before tax (EBT).
Another observer, Stockbrokers Botswana Analyst, Pulafela Isaacs said the major challenge which they believe faces this division is the level of inflation in the economy.
"The effect is two-fold: first operating expenses, especially fuel costs, rise and dampen earnings and second to that is the fact that inflation erodes purchasing power and consequently impedes revenue growth."
Due to this, Isaacs said they do not expect significant growth in this division.
But he admits that a lot of potential exists in the Palapye area where the second university is going to be located. He said Francistown is yet another area for growth because of the mining boom in the area citing that this should help drive the division's growth in the medium to long-term.
"Other opportunities will come as a result of the diamond beneficiation process, not through DTC Botswana per se, but through the sight holders. Also the development of properties like the Central Business District (CBD) in Gaborone will present some opportunities."
Isaacs said the economic and trading conditions are currently challenging, as the national year-on-year inflation for the month of March was 9.8%, having gone up from the February figure of 9.0%.
"At 9.8%, the rate of inflation is 3.8 percentage points higher than the Bank of Botswana's revised medium term target of 3-6%."
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He stressed that the effect of this high level inflation rate is a rise in the cost of sales, which for G4S include fuel costs for their large fleet.
"These high costs erode both gross and operating margins and on the consumers' side, inflation reduces purchasing power and the amount of disposable income available. We expect inflation to rise further in the short term, driven by the increase in petroleum and food prices as well as the expected increase in other administered prices and as a result we expect a drop in sales of luxuries products and services such as alarms."
Isaacs observed that the integrated services division is the major future growth driver but cautioned that the market is currently dominated by competitors and is a lower margin business. However, he noted that G4S has the advantage that its service has some add-on benefits, which include the communication link between the guard and the control room for purposes of back up.
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