BMC financial problems explained

SHARE   |   Sunday, 12 April 2015   |   By Dr Akolang Tombale
Dr Tombale Dr Tombale PIC RICARDO KANONO

Recently a lot have been said and in some cases written about BMC, mainly around our delayed payments to the farmers, but some going further even to cast doubts about the BMC performance achieved lately. I am not here to defend the said performance, history is there to judge us either fairly or harshly, however I thought, I should give factual information that is verifiable although the esteemed analysts can decide to interpret whichever way they want.

Firstly we all know by now that in the whole of 2011, and half of 2012, that is 18 months BMC was delisted from supplying the EU market which is the best market for our products.  Furthermore, when we were re-listed around July 2012, and started sending products to the EU market, we suffered a major setback, involving major products recall.  As if this was not enough in March, 2013 after the EU Audit, the Francistown plant was suspended from supplying the EU market due to the Foot and Mouth Disease (FMD) issues.

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Due to these problems the Government put in a lot of money in BMC especially during the de-listed period in 2011/2012, to the extent that we owe Government around P594 million. The problem here was that the said money was injected as a loan at the time when there was virtually no production.  In addi- tion to this BMC had borrowed around P125 million to upgrade the Francistown Plant, and P50 million was borrowed from Bank ABC to resuscitate the Maun Plant.  The total loan book is about P769 million. Therefore because of the non-activity in 2011 and 2012, the losses amounted to P233 million in 2011 and over P300 million in 2012.  As a result of these losses and the high gearing or huge debts, BMC resorted to using short term loans to address its operations (i.e. working capital). Some may be aware that last year
2014, we were guaranteed by Government to secure P300 million facility from Standard Chartered Bank. This therefore adds to the debt, and increases the cost of borrowing.

BMC pays over P45 million as interest, and in addition to this we pay P34 million a year to First National Bank (FNB) for the loan I referred to earlier, and pay P638,278 a month or P7,659,336 a year to Bank ABC. So the total cost that have to come from the operations to pay these various loans is over P86,000,000 a year. We were accused in some quarters that part of our income that improved our performance was P77 million that came from Government to compensate the losses in Francistown.  Yet if we take the payments that I have just shown coming from the operations, this compensates each other or cancels out.

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The operation model of BMC is also difficult to manage.  Because of the needs for traceability especially for the EU market, cattle slaughtered for this market must come from registered holdings where proper records are kept to ensure traceability. You may be also aware that Botswana around 2009, changed from the oxen to weaners production.  This meant that feedlots are needed to prepare weaners for slaughter and for traceability.

Because, most of our cattle in Botswana are from the communal sector, which are not EU market compliant, we had to introduce the Direct Cattle Purchase (DCP) Scheme to buy weaners to put them through feedlots. Thus we buy cattle and put them in feedlots for three (3) months or 90 days. Traditionally, BMC paid for cattle after 48 hours of delivery.  This therefore meant that we buy cattle cash upfront and put them through feedlots for 90 days at high cost.  For example currently we have about 27,000 cattle in feedlots at a cost of over P200 million and spend about P100 million to feed them. That is, we have over P300 million tied up in cattle stock.  It takes another two to three months to slaughter and market the products.  Therefore it is a total of 5 to 6 months before we can get the proceeds from the products of these cattle.

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Therefore to finance our operations we use the costly short term financing combined with sales whose proceeds which come only 5 to 6 months later.  We take other people’s money and tie in cattle stock whose proceeds only come 5 to 6 months later yet even them because it is short term financing when time comes that they should be paid they also need their money irrespective of the fact that the said money is still tied up in live cattle in feedlots. This therefore creates a serious cash flow problem or shortage. This is the major reason why we delay in paying farmers but NOT defaulting on payments as purported by our detractors, it is not deliberate, we feel for the farmers especially small farmers who still sell cattle because “bana ba ya sekolong” or “bana ba batla uniform” or “for medical purposes”. We know and feel for these farmers. On a personal level I went home to Bobonong over the weekend of 28th March, 2015, and I met my old aunt who is a widow and lives off her cattle. She had sold her few cattle to BMC and she had not paid for sometime.

There are others in Shakwe, Bodibeng, Mmatshumo or any other small or large village who are dependent on their cattle and have been negatively impacted.  I would like to assure these Batswana that my being here at BMC was to protect them and ensure that they have access to the best markets like any other farmer whatever the size. This is my pledge and passion, and therefore with my colleagues we vow to improve the operations of this great company for the benefit of the ordinary Motswana farmer.

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In 2013, the Commission achieved a revenue of P1.08 billion which was only the second time in its history that it achieved a revenue of P1 billion. The first was in 2010, where they achieved P1 billion after slaugh- tering 180,000 cattle whereas in 2013 we achieved P1.08 billion after slaughtering only 139,000 cattle which is about 41,000 cattle less than in 2010.  This reflects improved marketing and sales in 2013.  In
2014, we increased our revenue by 15 percent over the 2013 figure to achieve P1.16 billion with a slaugh- ter of 144,000 cattle.  I therefore, confidently say that our marketing and sales of BMC products is again very effective this time around. We have improved the way we market our products. We also produce to customer specifications. We subscribe to various customers’ and other international standard.  Some of the most important of these being, EU Certification, ISO 9001 (quality management system), Halaal, and British Retail Consortium (BRC) with A grading. With these standards we are able to penetrate niche mar- kets where we are currently ensuring consistency of supply at required volumes.

Measles also cost us dearly, currently ranging from 13 to 15 percent on average at opportunity cost of over P57 million.  Although we are part of Government wide strategy to fight measles, we will soon launch our own strategy as this cost us dearly.

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*Dr Akolang Tombale is BMC chief executive officer



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