Financial results indicate less distress among SA SMEs
Despite the current fragile state of the South African economy, Business Partners Limited, a specialist risk finance company for formal small and medium enterprises (SMEs), posted impressive financial results for the year ended 31 March 2013.
Total income of R428.5 million was 6.2% higher than in the previous financial year, which was largely attributable to a healthy increase in net property revenues. Net profit after tax was R136.4 million, 36.4% higher than during the previous financial year. Operating expenses were also tightly managed, decreasing by 0.9%.
Net credit losses (bad debts and impairments) decreased by 31.0%, in comparison to the previous financial year, to R44.9 million – a positive indicator, highlighting a decrease in SME clients experiencing financial distress.
In total, Business Partners Limited approved 331 investments to the value of R891.7 million during the 2012/2013 period. Of this, 90 investments to the value of R185.7 million were approved for black entrepreneurs, while 105 investments amounting to R214.2 million were approved for female entrepreneurs. More than 11 900 employment opportunities were facilitated through the company’s investment activities.
The company also announced that the amount of funding disbursed to SMEs for the 2012/2013 financial year amounted to R600.8 million – a total number of 251 investments, which is a decrease in comparison to the previous financial year. However, Business Partners Limited ended the year with R341.1 million worth of investments approved, but not yet disbursed, which should augur well for disbursements in the 2013 / 2014 financial year.
According to Nazeem Martin, Managing Director of Business Partners Limited, despite tough economic and trading conditions, the number of Business Partners’ clients experiencing distress decreased significantly during the last year. “In an economy where entrepreneurs are failing to service their loans, we were able to decrease credit losses. The low interest rate environment also contributed to improved cash flows for many SMEs, hence their ability to service contractual obligations.
“In addition, the mentorship, post-investment support and technical assistance provided by our investment team assisted many of our clients through the tough trading conditions.”
Martin says that the company also played its part in job preservation during the past financial year. “In an environment characterised by rising unemployment, we were able to assist in stabilising many local businesses, preserving vital jobs that may have otherwise been lost.”
However, Martin says that the state of household balance sheets and the muted economic growth prospects meant that entrepreneurs, especially from the SME sector, remained reluctant to take on debt to finance growth, acquisitions or the establishment of new businesses. “We attribute this to factors such as the subdued growth in consumer spend, inflationary increases in administered prices, and labour unrest in the mining sector, which started to spread to other sectors and resulted in above inflation wage settlements.”
He says that the company remains positive going forward, and have earmarked R1 billion for financing SMEs during the 2013/2014 financial year. “A significant factor for this outlook is government’s recently announced multi-year infrastructure spending plans. This counter-cyclical spend, when it materialises, should boost economic growth and create a healthy platform from which South African SMEs can grow when global growth returns, especially those directly linked to infrastructure-related projects, such as suppliers of goods and specialised services.”
He says that the company is still pursuing its moderate growth in new business strategy in South Africa. “Cautiously, yet optimistically, we are increasing our investment activity, with an increased focus on financing lifestyle businesses and properties in South Africa. We are investing 50% of our new investment spend into “real” assets, therefore growing our own portfolio of properties which would meet the premises needs of SMEs, as well as through our bespoke property finance solutions, which enable SMEs to acquire the properties from which they operate, or for investment purposes.
“We also established our venture capital fund in 2012, which allows us to fund and support exceptional businesses, concepts, products and services which have the potential to grow market share way beyond the borders of their areas of origin, as well as employ more people and make substantial profits.”
He says that the contribution of SMEs to generating economic growth and employment is universally recognised. “It is also widely acknowledged that a healthy and growing SME sector is a pre-requisite for reducing the challenges of unemployment, poverty and inequality which afflicts much of the developing world,” concludes Martin.