Overview
Simbisa Brands Limited (“Simbisa Brands” or the Group”) is committed to providing the Pan-African population with affordable, accessible, nutritious, and delicious meals while offering the best quick service restaurant experience. Over the past six months, the business has continued to live up to its commitments in 604 stores across nine countries.
The key highlights for the period are that:
- Simbisa Brands continued to record strong year-on-year growth in customer counts. Our restaurants served over 52.3 million customers, up 28.6% from the prior year.
- During the financial year ended 30 June 2022, the Group opened 86 new stores.
- In Kenya, Simbisa consolidated its position as the largest QSR operator in the market surpassing a key milestone of 200 stores.
- Delivery sales grew by 45% against the same period last year, contributing significantly to Simbisa Brands’ overall financial performance.
- Simbisa Brands won ‘The Best Tangible Returns’ award at the 2022 Zimbabwe Top Companies Survey Awards sponsored by Old Mutual Zimbabwe and The Financial Gazette.
The performance for the period is a testament to the dedication of the extraordinary people employed by the Group who share a common passion and enthusiasm for the Group’s brands.
In the period under review the following matters received critical attention from the Board:
- The Impact of global inflation and supply chain challenges on our businesses
All our markets have seen the negative impact of global inflation resulting in increased costs of raw materials, energy costs and other overheads. Inflation has also impacted consumers’ disposable income. The Board is confident in the measures introduced in the different markets to mitigate the impact of inflation and still meet growth targets. These measures include, amongst others, importing our own raw materials where it’s more economical to do so, investing additional amounts in working capital and providing value offerings to our customers. - Growth Initiatives
During the period under review, the Group focused its growth strategy on the two largest markets, Zimbabwe, and Kenya, adding 27 stores, and 39 stores respectively.In smaller markets, the Group focused on stabilising existing stores and optimising operating models. This enhanced focus on existing stores resulted in all markets contributing positively to the Group’s operating profit.Across the Group, excellent customer service remains key to the Group’s organic growth. Key to achieving this objective is the fully-fledged Franchising Division which operates independently of the restaurant operators with the aim of improving brand quality and customer service in our stores. Simbisa Brands invested significantly in expanding the scope and capacity of the restructured Franchising Division. - Talent Management
Part of Simbisa Brands’ mission is to improve and empower the more than 8,500 people employed by the Group. During the year, staff welfare and training matters were high on the agenda of the Board and periodic reviews of Training Programs and outcomes occurred.
Financial Reporting Matters
i. Foreign Exchange rate disparities in Zimbabwe and impact on financial reporting
Foreign exchange rate distortions and the disparity between the official rate and the real exchange rate reflected by comparing market prices in local currency against market prices in foreign currency continued over the period under review. As highlighted in the Chairman’s reports’ accompanying the Group’s financial statements for the financial years ended 30 June 2020 and 30 June 2021, the Board’s considered view is that the exchange rate derived from the Reserve Bank of Zimbabwe weekly Foreign Currency Auction System (“Auction Rate”) is not appropriate and is not a “Spot Rate” compliant with the requirements of International Accounting Standard (IAS) 21, “The Effects of Changes in Foreign Exchange Rates” and therefore International Financial Reporting Standards (IFRS).
The Group’s Zimbabwean Operation continues to generate all its foreign currency from the sale of its products in the local market in line with the multi-currency framework prevailing and therefore does not have access to the Reserve Bank of Zimbabwe foreign currency auction system.
To achieve a fair presentation of the Group’s financial performance and financial position, Simbisa Brands estimated an exchange rate based on the market transaction rates and applied this rate to translate monetary foreign currency balances on the statement of financial position. The Group used the same estimated exchange rates to translate the results of its foreign subsidiaries. This in your Board’s view represents a true and fair view of Simbisa Brands’ financial position in the circumstances.
The Group’s Independent Auditors are of the view that the Auction Rate is a “Spot Rate” compliant with the requirements of IAS 21. As a result, they have issued an adverse opinion, on the same basis as indicated in the audit opinion on the Group’s financial statements for the years ended 30 June 2020 and 30 June 2021.
The impact of the use of the transactions-based exchange rate on the accompanying financial statements is as follows:
The Group commends efforts by the Reserve Bank to stabilise the country’s local currency in the period after the Group’s reporting date. However, the Group urges the Reserve Bank of Zimbabwe to review minimum productive sector lending rates which are currently set at 200% as this may stifle growth in the medium term.
Financial Performance Highlights
Key highlights (in inflation-adjusted terms) are as follows:
- Revenue increased by 76% (+48% in Zimbabwe and +214% in the Region). Growth in Zimbabwe is from an increase in customer counts of 28%. In the Region, (excluding the impact of the Zimbabwe dollar exchange rate depreciation), Revenue increased by 38% in USD terms, from a 30% increase in customer counts.
- Gains from foreign currency translations increased profit by ZWL 12.1 billion (2021: ZWL 3.1 billion).
- Profit attributable to shareholders and headline earnings increased by 71% and 66%, respectively.
- In addition, to the above profit measure, the Group tracks an adjusted attributable profit. This measure is after adjusting attributable profit for the impact of IFRS 16, Leases. IFRS 16 treats leases previously classified as operating leases under the previous standard, IAS 17, as financing arrangements. The Directors believe that considering the nature of the Group’s lease arrangements, an adjusted profit measure excluding the impact of IFRS 16 is valuable to users of the financial statements. The adjusted measures are as follows:
- Cash generated from operations was ZWL 21.7 billion up 342% from last year.
- ZWL 18.7 billion was spent on investing activities, of which ZWL 6.3 billion was spent on capital expenditure in Zimbabwe and Kenya. ZWL 11.7 billion was invested in financial assets.
- Total debt (excluding IFRS 16 liabilities) was ZWL 4.9 billion (30 June 2021 restated: ZWL 4.2 billion). Total debt remains below x1 operating profit.
Final Dividend
The Board resolved to declare a final dividend of 0,58 US cents per share. Furthermore, the Board approved a dividend of US$163,034 to the Simbisa Employee Share Trust. The dividend will be payable in United States dollars on or about 19 October 2022 to shareholders registered in the books of the Company close of business on 14 October 2022. The last day to trade cum-dividend is 11 October 2022, and the ex-dividend date is 12 October 2022.
Corporate Governance
There have been no changes to the Board composition since our last report.
Sustainability
Creating long-term value for our stakeholders has been fundamental to Simbisa Brands’ growth since the business opened its first Chicken-Inn outlet in 1987. The Group has grown together with its stakeholders and sustainable business practices and decisions are already strongly embedded in the Group’s culture as evidenced by the value the Group has created for its suppliers, the employment the Group has created and the contribution to governments and local authorities. However, Simbisa Brands, like many responsible corporates in Africa, is on a journey to make sustainability a central focus for key decision makers. To this end, the Group has appointed sustainability champions across its business and continues to invest more time and resources in this objective.
From a Corporate responsibility perspective, the Board approved a 3-year corporate responsibility strategy focusing on three key United Nations Sustainable Development Goals: Zero Hunger, Quality Education and Clean Water and Sanitation. An exciting initiative already in progress under this strategy is the construction of the USAP Community School for underprivileged students in Marondera, Zimbabwe which Simbisa Brands is supporting through various fund-raising initiatives with its suppliers as well as the business community in Zimbabwe.
Outlook
The upcoming financial year has exciting prospects for the Group. The Group has a significant pipeline of new stores and expects to open 87 new stores in FY23, mainly in Zimbabwe (45) and Kenya (30) at a cost of about US$23 million. The Group is generating sufficiently strong free cashflows to drive this growth. The Board intends to implement a number of initiatives to invest any additional free cash generated in additional areas, in order to achieve the Groups’ overall target growth trajectory.
In Zimbabwe, inflation eased significantly in August from a mix of global and domestic factors. The Fiscal and Monetary Authorities in Zimbabwe are to be commended for the bold decisions taken towards the end of the period under review to address their previous policy mis-steps. It is the Boards’ hope that the prudent and pragmatic regulation of the fiscal space will continue and usher in a more stable and predictable economic environment in Zimbabwe in the medium to long term. There is a dire and urgent need to address the current and unnecessarily punitive Taxation laws in particular Intermediated Money Transfer Tax (IMTT).
In the Regional businesses, global inflation will continue to be the single biggest factor influencing the Group’s plans. The Board is confident that the measures put in place by management in the respective countries to address these challenges.
The Board remains focused on monitoring customer experience improvements across the Group and making sure that our staff will continue to focus on providing the best customer service.
Appreciation
On behalf of the Board, I would like to acknowledge the hard work and dedication of the more than 8,500 employees across the Group. I also wish to express our sincere appreciation to our loyal customers and business associates for their continued support and patronage. Finally, I recognise the efforts of my fellow Directors and Executive Management in producing this outstanding result.
ABC CHINAKE
Independent Non-executive Chairman
Harare
26 September 2022
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