OVERVIEW

Throughout the six months under review, the Group continued to trade under challenging conditions due to the socio-economic and regulatory effects of the Covid-19 pandemic across all the markets. Despite this, Simbisa delivered an excellent performance. The key highlights for the period include:

• Simbisa recorded a strong rebound in customer counts despite limitations in trading hours and other restrictions;
• The Group opened 47 stores during the six-month period, including 5 drive-thru restaurants;
• A 53% increase in delivery sales against the same period last year contributed significantly to Simbisa’ s financial performance;
• Simbisa continued to invest in technology and digital initiatives encompassing digital menu boards, digital ordering and manufacturing process automation. These investments complement the business’ efforts to improve the customer experience.

The Board continues to strategically navigate the short-term challenges brought about by the Covid-19 pandemic with its stated ambition of driving growth into the future.

In the period under review the following matters received critical attention:

1. Covid-19 induced trading restrictions
   Although successful vaccination efforts have raised optimism across the globe, recurrent waves and new variants of SARS-coV-2 virus will continue to impact business operations.Therefore, keeping our staff and customers safe remained the number one priority.In our leading markets, (Zimbabwe and Kenya), Simbisa restaurants traded -44% and -13% respectively, below the regular trading hours. Limits on sit-down services, international travel restrictions and limitations on gatherings and the resultant decrease in customer movement also impacted trading results. Conversely, however, the pandemic has also brought about new opportunities, accelerating customer adoption, of omnichannels such as drive-thru service, curb-side collection, and online delivery ordering. Simbisa continues to improve its service offerings and delivery models across these channels.
2. Strategic focus areas
   Strategically, the Board focused on three key areas: new store roll-out, store remodelling initiatives, and customer experience enhancement. The Board approved a significant pipeline of new stores, stretching into the next financial year. The Board also approved store-remodelling initiatives including smaller footprint stores in markets such as Mauritius, which have been highly successful. To enhance customer experience, quality of service and brand consistency, the Board has increased the focus and resources allocated to training, talent retention and compliance with brand standards. The Board is also closely overseeing the implementation of various initiatives covering food processing, customer engagement and financial systems and controls to enhance customer service optimisation and improve operational efficiencies and real time financial reporting.

FINANCIAL REPORTING MATTERS

i. Foreign Exchange rate disparities in Zimbabwe and impact on financial reporting
In the Company’s Financial Year Ended June 2021 Report, set out the Board’s considered view that the exchange rate derived from the Reserve Bank of Zimbabwe weekly Foreign Currency Auction System (“Auction Rate”) is not appropriate as 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). Since that report, there have not been any significant changes in the Zimbabwean market, and the Board maintains the view previously expressed to shareholders. The Group’s Zimbabwean Operation continues to generate all its foreign currency from the sale of products in the local market in line with the multi-currency framework and does not have access to the foreign currency auction system. Furthermore, the disparity between the Auction rate and the rate reflected by comparing market prices in local currency against foreign currencies has sadly continued to widen.

The Group, therefore, estimated an exchange rate based on the 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.

The Independent Auditors believe the Auction Rate to be a “Spot Rate” compliant with the requirements of IAS 21. As a result, they have issued an adverse review conclusion, on the same basis as indicated in the audit opinion on the Group’s financial statements for the year ended 30 June 2021. Varying views on the matter remain across the professional accounting sector in Zimbabwe. Simbisa will continue to lobby, through the relevant bodies, including the Public Accountants and Auditors Board, for guidance to be established that better reflects the peculiar economic environment prevailing in Zimbabwe.

ii) Impact of international Financial Reporting Standard (IFRS) 16: Leases
As highlighted in our Group Annual report for the year ended 30 June 2021, the application of IFRS 16 has had a material impact on the Group’s results as it operates most of its stores under operating lease agreements. IFRS 16 applies a single lease accounting model, like that of finance leases under the previous lease standard, IAS 17. Operating lease arrangements are therefore treated as financing arrangements under the new standard. The accounting impact of the standard is a significant dilutive effect on the Group’s earnings in the early years of the lease and the opposite in the last years.

The Directors believe that considering the nature of the Group’s lease arrangements, it is neither appropriate nor useful to treat the Group’s operating leases as financing arrangements, particularly from an income statement perspective. The Board continues to assess the relevance of this standard and usefulness to shareholders and users of the Group’s financial statements.

FINANCIAL PERFORMANCE HIGHLIGHTS

Key highlights (in inflation-adjusted terms) are as follows:

• Revenue increased by 54% (+26% in Zimbabwe and +129% in the Region). The main driver of growth in Zimbabwe was an increase in customer counts of 18%. In the Region, (excluding the impact of the Zimbabwe dollar exchange rate depreciation). Revenue increased by 36% in USD terms, mainly from a 28% increase in customer counts.
• The Group recorded a net monetary gain of ZWL267 million (2020: ZWL239 million), reflecting robust inflation hedging strategies in Zimbabwe.
• Foreign currency translations favourably impacted profit by ZWL 2billion (2020: ZWL 828million).
• Profit attributable to shareholders and headline earnings increased by 75% and 68%, respectively.
• Cash generated from operations was very strong at 173% of Operating profit.
• ZWL1.23 billion was spent on investing activities.
• Total debt (excluding IFRS 16 liabilities) was ZWL1.9 billion (30 June 2021 restated: ZWL2.7 billion). Total debt remains below x1 annualised operating profit.

INTERIM DIVIDEND

The Board resolved to declare an interim dividend of ZWL 134 cents per share (FY21: 53 ZWL cents per share). Furthermore, the Board approved a dividend of ZWL37,666,381 to the Simbisa Employee Share Trust. The dividend will be payable in Zimbabwe dollars on or about 6 April 2022 to shareholders registered in the books of the Company close of business on 1 April 2022. The last day to trade cum-divided is 28 March 2022, and the ex-dividend date is 29 March 2022.

CORPORATE GOVERNANCE

There have been no changes to the Board composition since our last report.

SUSTAINABILITY

As a multi-national company, Simbisa Brands has an obligation to exercise responsible business practices that uphold environmental stewardship and positively impact the community. The Board recently 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.

Simbisa continues to strengthen and align its policies and procedures to minimise any negative impacts on the environment and society. Simbisa Brands supported less privileged children by donating meals and drinks during the half-year to 16 institutions and this positively impacted 1,600 children. Simbisa together with the National Blood Services of Zimbabwe (NBSZ) hosted a blood donation drive hosted at our various food courts. Simbisa Brands continues to focus its CSR activities on children’s education, public health, and other public institutions in a sustainable manner.

OUTLOOK

The Board is confident of the growth prospects of the Group and the economic environments in the different countries of operation. The key objective in the short term would be to maintain the strong rebound in trading despite continued Covid-19 induced trading conditions. Simbisa is on course to meet a target of 92 new store openings by the end of the financial year as communicated in the Group’s last report. The Group has approved plans to open 69 new stores by 30 June 2022 (19 in Zimbabwe, 29 in Kenya, 9 in Ghana, 1 in Zambia, 1 in Mauritius and 10 in the Democratic Republic of Congo (franchise stores)) at a cost of about US$14 million. By the end of calendar year 2022, the Group should be operating 662 counters.

Although Covid-19 remains endemic and will continue to influence business operations and decisions, the Board will pursue the expansion of the Simbisa Brands footprint.

The ever-evolving economic environment in Simbisa’s largest market, Zimbabwe, and changes in economic policies in Zambia will require managements’ close attention, coupled with nimble and adaptable business strategies. The Group also expects cost pressures across our markets to continue against the background of weakening emerging market currencies and heightened inflation. The Board is confident in the management team’s strategies to keep growing customer counts and maintaining operating profit margins in the face of these challenges.

The Board recognises that Simbisa’ s success hinges on offering an excellent customer experience. The Group will continue to invest in improving the digital sales experience and the efficiency of our drive-thru, delivery, and collect sales channels to enhance the customer experience further. The Board is confident that the recent optimisation of the operational and franchising organisational structure will enhance the focus on quality customer experience.

Simbisa remains committed to ensuring that the business operates to the highest possible health and safety standards to protect the health of its employees, customers, and other stakeholders. The Group will also continue to support the authorities in efforts to reduce Covid-19 infection rates, encourage vaccination and mitigate the impact of the pandemic in the community.

APPRECIATION

In closing, I would like to express on behalf of the Board, our sincere appreciation of the continued efforts and resilience of our employees and managers across the Group whose hard work and dedication is evident from the outstanding results achieved over this difficult trading period. I also want to express our continued gratitude to our loyal customers and business associates for their continued support.

ABC CHINAKE
Independent Non-executive Chairman
Harare
18 March 2022