CWG explains shift to Naira-based transactions
In an effort to deepen growth of income generated from its recurrent businesses, Pan-Africa company, Computer Warehouse Group (CWG Plc), has explained the shift in focus from a dollar-based transaction model to Naira-based business activities.
The Chief Operating Officer at CWG Plc, Kunle Ayodeji, who recently joined CNBC Africa, to break down the Company’s half year business numbers, said: “We are shifting to a more Naira-based way of doing business, as a result of the foreign exchange challenges in the country.”
CWG has begun a gradual move to profit before tax of N53.9 million compared to a loss of N350 million same period a year ago.
Explaining the reason for decline in revenue during H1 2016, Ayodeji noted that the foreign exchange liquidity challenges experienced in its 2016 half year operations took its toll on the sales activities of the Company.
“Last year, we were able to book most of our outright sales, which are hardware products and licences of Original Equipment Manufacturers (OEMs) that we supply to our customers,” unfortunately, for 2016, “the foreign exchange has significantly impacted on us and we have deliberately held back some of the transactions, which would have exposed us to significant exchange rate fluctuations.”
According to him, “If you look at the figures from last year, we actually made N600 million loss due to foreign exchange variations. So, we have deliberately decided, this year, not to do certain transactions, which is why our outright sales are much lower than what we did last year.”
“Outright revenue are generated from the sales of OEMs’ equipment or licences to its customers. In order to deepen growth of income generated from our recurrent businesses which has longer term contracts in nature and encourages use of local resources, we decided to focus more on that this year. So, if you look at our numbers, we had previously done 80 per cent on outright sales and 20 per cent on recurrent in 2015.”
However this year, CWG has done 53 per cent on recurrent businesses while 47 per cent have been outright sales.
“The recurrent businesses tend to have much higher margins than sale of hardware infrastructure which explains why our margins went up” he added.
Adducing what was responsible for the gradual turn in tides from a loss position to a profit position, Ayodeji said: “A couple of factors are responsible: one is the shift of the business from a dollar-based model to a Naira-based one and we have also carried out a number of cost optimisation exercises in the areas of cost of sales and operating expenses. Our financing cost has also gone down due to the reduction in outright businesses which require opening leters of credits and bank guarantees, thereby reducing our dependence on bank loans as we are currently using our own cash flows to finance our operations.”