Chairman’s Statement
Overview
Challenging trading conditions persisted in the year under review. In Zimbabwe, foreign currency shortages and exchange rate devaluation, rampant inflation, policy uncertainty, high unemployment, electricity and fuel shortages have resulted in a particularly challenging operating context for Simbisa’s largest operating market. The Group’s regional markets have benefited from stable operating environments in the financial year under review, with relatively few exogenous shocks to these businesses’ trading environments. However, rapid fluctuations in exchange rates and general currency volatility have had varying negative impacts from consumer spending patterns and margins in some markets. The Kenyan Shilling has been affected by the back and forth between a strengthening US Dollar and the Zambian Kwacha depreciating significantly against the USD over the course of the financial year.
In Kenya, our largest market outside Zimbabwe, the Board is pleased to report that despite inflationary pressure, the Group continued its strong roll-out of new restaurant branches. Capital allocation and the store roll-out have been a high priority area for the Board in this market.
Other key markets being Zambia, Mauritius, Ghana and the DRC have been stable in the operating environment. There are still challenges, including the depreciating local currencies in Zambia and Ghana. Our short-term targets are therefore underpinned by getting the right people to manage each business, investing in training and talent retention and improving operational efficiencies. We remain confident of achieving profitability in these markets in the medium term.
Our franchise markets are increasingly offering growth opportunities which the Group is pursuing with its strategic partners in these markets. In the Democratic Republic of Congo, an additional 4 stores were opened during the year to close the year at 14 stores.
Material Financial Reporting Matters
Functional and Reporting Currency
Zimbabwe experienced significant monetary and exchange control policy changes during the Group’s financial year:
- On 1 October 2018, banks were instructed to separate (create distinct legal) bank accounts for deposits, namely: RTGS FCA and Nostro FCA accounts. From that date, Nostro FCA accounts were designated to hold funds that pertain to foreign funds, diasporan remittances and international transactions, while the RTGS FCA accounts were designated to hold domestic Zimbabwe Dollar funds.
- Two types of accounts continued to be referred to as the United States Dollar (USD) and the exchange rate remained fixed at 1:1.
- On the 22nd of February 2019, Statutory Instrument (S.I) 32 of 2019 was issued, introducing a new currency called the RTGS Dollar. The Exchange Control Directive RU 28 of 2019 was issued on the same day which introduced an interbank market for the RTGS Dollar and the USD as well as other existing currencies in the multi-currency regime.
- On 24 June 2019, S.I 142 of 2019 was issued, ending a multi-currency system which had been adopted in 2009 and reintroduced the Zimbabwe Dollar as the sole legal tender in Zimbabwe.
The above pronouncements have created significant challenges for the Group in terms of compliance with International Financial Reporting Standards (IFRS) due to conflicts with International Accounting Standard (IAS) 21: The Effects of Changes in Foreign Exchange Rates. This resulted in the External Auditors issuing an adverse audit opinion on the Group’s financial statements for the year ended 30 June 2019.
Due to the absence of year-on-year inflation data from the Ministry of Finance, the Group will continue to report on a historical cost basis and will reassess the reporting status in the coming financial year once clarity is provided.
Group Results and Dividend
The Board is pleased with the Group’s performance during the year. Key highlights include:
| Key Highlight | F19 (ZWL millions) | F18 (ZWL millions) | Growth (%) |
|---|---|---|---|
| Revenue | 390.8 | 204.7 | 91% |
| Operating Profit | 64.0 | 28.1 | 128% |
| Profit Attributable to Shareholders of Simbisa | 32.1 | 14.2 | 127% |
| Cash Generated from Operations | 73.6 | 28.3 | 160% |
| Total Assets | 280.2 | 84.8 | 230% |
| Total Liabilities | 116.1 | 40.6 | 186% |
| Total Debt | 63.2 | 18.6 | 278% |
The following highlights are worth noting against the background of aforementioned developments regarding Zimbabwe’s function and reporting currency:
- A foreign exchange loss of ZWL 27 million incurred due to exchange rate fluctuations on the revaluation of foreign denominated trade payables to the Zimbabwe Balance Sheet.
- Exchange losses are payable on settlement of loans and liabilities of foreign origin. These exchange losses were attributed to the fluctuations in the exchange rate between ZWL and USD over the financial year.
Corporate Developments
Certain key milestones were achieved during the financial year, which included:
- Successful roll-out of the Dial a Delivery (DAD) mobile application in Zimbabwe and Kenya.
- Expansion strategy in Kenya gathering momentum with the ranked closing with 141 outlets against 123 outlets at 30 June 2018 and 131 outlets at 31 December 2018.
5,400,000 employee share options granted in June 2016 vested during the financial year and 4,314,837 shares were issued to qualifying employees while the balance was retained by the Company as treasury shares.
Governance
The Board is committed to maintaining good corporate governance standards. The Group fully supports principles contained in the ZSE Revised Listing Rules gazetted in June 2019. The Board has formally adopted the Quoted Companies Alliance (QCA) Corporate Governance Code. The Board is confident that the Group has substantially complied with these standards over the financial year.
Sustainability
The Board recognizes that long-term business success includes making a positive contribution to society. This is the third year since the Group adopted Sustainability reporting and the Board continues to monitor how we measure and report on issues that have an impact on our stakeholders including shareholders, employees, customers and the community.
Outlook
The Board is confident that Simbisa is in a good position to navigate the evolving environments in the markets we operate in. We expect Zimbabwe to be particularly challenging in the short to medium term and we are conscious of currency debt-induced pressures in the Kenya and Zambia economies. We remain optimistic of improvements to conditions in the medium-term and providing sustainable growth and returns to our shareholders.
Dividend Announcement
Notice is hereby given that on 12 September 2019 the Board of Directors declared a final dividend of ZWL 0.91 cents per share payable out of the profits of the Group for the year ended 30 June 2019.
The dividend will be payable in Zimbabwe dollars on or about 8 November 2019 to shareholders registered in the books of the Company close of business on 1 November 2019. The last day to trade cum-dividend is 29 October 2019 and the ex-dividend date 30 October 2019.
Appreciation
On behalf of the board, I would like to express my appreciation to all our shareholders, loyal customers, supportive suppliers and each of the 5,868 associates who work at Simbisa Brands Limited. Their commitment and hard work have been critical in taking the Group to where it is today. I wish them every success in their endeavors as we build on the progress we have made into the next financial year.
For and on behalf of the Board
A. B. C Chinake
Non-Executive Chairman
7 October 2019
