Chairman’s Statement and Review of Operations
Introduction
FY16 was a transformational year for our Company following our unbundling from Innscor Africa Limited (Innscor) and listing on the Zimbabwe Stock Exchange on 6 November 2015. We are confident that we have a strong foundation to achieve our goal of becoming the leading Pan-African QSR operator.
Simbisa Brands Limited was incorporated on 5 August 2015, and adopted 30 June as its financial reporting year end. Following its unbundling from Innscor on 1 October 2015, these financial results therefore only present QSR financial performance for the 9 months from 1 October 2015 to 30 June 2016. The period from 1 July 2015 to 30 September 2015 has been reported separately by Innscor Africa Limited.
Business Overview
Our brands have remained strong despite continued adverse trading environments in the markets we operate in. We are growing in store coverage and we believe Simbisa is set to provide compelling shareholder returns over the long run. In the past financial year alone, our net growth in counters was 56 across all our markets taking our store count to 419. In the 9 month reporting period, we increased our customer base by over 1 million customers by serving over 35 million customers in this period. However, unfavourable currency movements against the USD in all of our operating regions weighed down on USD-denominated spend and negatively affected revenue in USD terms.
Group operating profits fell 9.2% in USD terms from the prior comparable period, weighed down by pre-operating costs and losses incurred in our new market, Mauritius, as well as additional store roll-outs taking place towards the end of our financial year. We expect these new stores to contribute positively to profits in FY17. Our distinct advantage is that we operate the majority of our own stores and the potential to gain operational efficiencies and reduce costs is immense. Our largest market, Zimbabwe, is already realizing benefits of operational efficiencies, growing in profitability despite softening sales.
Following the unbundling, Simbisa acquired the remaining material non-controlling interests in Zimbabwe and in the Region with the goal of aligning the Group’s strategy and interests across all markets and enhancing shareholder returns. After obtaining relevant approvals, Simbisa issued 15,191,348 new shares to the minorities at USD0.25 each as part payment for the consideration with USD3,777,162 payable in cash. As a result of this initiative, Headline Earnings Per Share increased by 14.2% from the prior comparable 9-month period.
Zimbabwe
The business in Zimbabwe continues to be resilient, despite the current macro-economic challenges. Zimbabwe contributed 62% of Group revenue. Management introduced new innovative products across the major brands and are consistently re-engineering the menus so that they appeal to the ordinary citizen in order to counter the expected drop in average spend. Our Dial-a-Delivery service has been well received by the market and is now available throughout Harare and Bulawayo.
Simbisa opened a net of 7 new counters (opened 18 new counters and closed 11) in the period. The recent roll-outs take our store count to 189 counters across Zimbabwe. Our strategy in Zimbabwe is to achieve greater internal operational efficiency on our current stores and maintain excellent customer experience through training of staff and investment in human resources and information technology. New store roll-outs will be limited to locations with potential of achieving above average profitability margins and innovative concept stores such as our Drive-thrus.
The Region
Regional operations, namely Kenya, Zambia, Ghana, DRC and Mauritius, contributed 38% of Group revenue. Unfavourable foreign currency movements against the USD continue to negatively impact results of our Regional operations. Regional operations’ profitability ratios have also been weighed down by commencement of activities in Mauritius and additional store roll-outs in Kenya which are only expected to set off costs in FY17.
Expansion into the Region is critical in order for Simbisa’s business to spread the risks over different markets and to achieve our goal of spreading our footprint into Africa as a diversified Pan-African operator. We remain cautiously optimistic and our strategy is to find the right local partner, the right locations, choosing the right brand from our portfolio and then finding the right menus and products that match local tastes.
Simbisa opened 17 new counters in Kenya, taking the overall store count to 116 as at 30 June 2016. Kenya is the second largest market after Zimbabwe contributing 25% to Group revenue. The Kenya operations are 100% owned by Simbisa following the buy-out of a 20% non-controlling interest during the period. With a forecasted GDP growth of between 5% and 7%, combined with the business’ strong cash generating ability and low gearing, we regard Kenya as a potential growth market for Simbisa through store roll-outs and acquisitions.
Challenging macro-economic conditions continue to influence business operations in Zambia. Simbisa closed 5 counters and opened 4 new counters during the period in a continued effort to restructure the business and improve profitability, taking the store count to 37 counters. Our strategy in this market is to upgrade high-performing stores, improve service level experience, and ensure that non-performing locations break even.
Simbisa opened 7 new counters and closed 5 counters in Ghana, taking the store count to 20.
During this reporting period, Simbisa commenced operations in Mauritius with a steady rollout of 13 new counters between the months of December 2015 to June 2016. Pre-operating costs and losses from initial months of operation contributed to the lower profitability margins in the Region. Mauritius has great potential, and management is optimistic that the new stores will start being profitable in FY17 as our product offering is received well in the market.
In DRC, Simbisa opened 2 new counters in Lubumbashi, taking the store count to 10. Average spend has declined from previous years in the market due to the impact of depressed commodity prices which we are starting to see filter through to the consumer, whose income is experiencing downward pressure. We are nonetheless exploring expansion opportunities in this market.
Future Prospects
We have confidence that Simbisa is well positioned to grow its earnings over the ensuing few years. Our store roll outs in the Region over the past period will contribute positively to the business’ profitability over the next year. Our intent over the next 2 years is to optimise operational efficiencies across all markets, cautiously roll out new stores in prime locations and pursue acquisitions in strategic markets in the Region on the back of our already existing, strong cash generating businesses in existing regional markets.
Appreciation
On behalf of the Board, I would like to thank Simbisa management and staff for hitting the ground running and our customers and stakeholders for their continued support of our brands.
Dividend
The Directors have recommended a final dividend of 0.12 cents per share to be paid on or about 4 November 2016. This brings the total dividend for the year to 0.24 cents per share.
For and on behalf of the Board
ABC Chinake
Non-Executive Chairman
28 September 2016
