Chairman’s Statement

OVERVIEW

I am proud to present Simbisa’s maiden set of results following the listing of the Company on the Victoria Falls Stock Exchange (“VFEX”).

On 18 November 2022, shareholders approved the delisting of the ordinary shares of the Company from the Zimbabwe Stock Exchange (“ZSE”) and the listing of the ordinary shares on the VFEX. On 2 December 2022, Simbisa Brands Limited was admitted to the VFEX and the Company’s shares commenced trading on 5 December 2022. The delisting from the ZSE and subsequent listing on the VFEX is expected to enhance long-term shareholder value.

The Group’s incredible accomplishments for the past six months are against challenging macroeconomic conditions in the various markets. The following matters dominated operating landscapes in the markets in which Simbisa operates:

• The Kenya business was affected by global commodity price shocks, the ongoing regional drought, and uncertainty in the run-up to the 2022 general elections. The impact this has had on consumer disposable income and business costs of inputs is evident.
• Zimbabwe’s monthly inflation was dampened following policy intervention by the authorities at the beginning of the financial year. However, the country continues to experience a depreciating local currency, severe energy shortages, and significant macroeconomic and policy uncertainty.
• Rapid currency depreciation in Ghana impacted consumer spending and increased the cost of imports.

Despite these challenges, the Group made significant progress in its strategic areas of focus:

• Environment and community responsibility
  Simbisa invested in its communities through initiatives to support disadvantaged communities. The construction of the USAP Community School for underprivileged students in Marondera, Zimbabwe which Simbisa is supporting, commenced during the period.

• Investing in our employees
  Staff welfare, staff engagement, and training received the Boards critical attention over the period. Consistent with previous periods, the Board declared a discretionary dividend equivalent to 5% of the dividend amount payable to ordinary shareholders of the Company. Employee wellness was top of the agenda over the period and the business launched a free counselling application for its employees, “Simbisanai”, which means “strengthen each other”. The application provides employees with access to qualified counsellors to help them with any emotional and mental health matters.

• Continuous improvement in our quality and service
  The Group continued to enhance internal training programs and allocated additional resources to training across its business units.

• Financial performance
  The business achieved a 18% overall growth in operating profit.

• Growth
  The Group opened 46 new counters between 31 December 2021 and 31 December 2022 to close with a total of 631 counters. We are on track to close this financial year with 680 counters.

FINANCIAL REPORTING MATTERS

i. Change in the Group’s presentation currency to the US dollar.

Following the listing on the VFEX, which is a USD-denominated stock exchange, the Group, in terms of IAS 21 made an accounting policy choice to adopt the USD as the Group’s reporting currency. Reporting in a stable currency will enhance the usefulness of the financial statements to the Group’s stakeholders.

ii. Change in functional currency for Zimbabwe subsidiaries to the US dollars

The functional currency is the currency of the primary economic environment in which the entity operates. The Group reassessed its functional currency determination in compliance with the requirements of IAS 21, The Effects of Changes in Foreign Exchange Rates, and concluded that effective from 1 July 2022, the functional currency of Simbisa Brands Limited changed from the Zimbabwe dollar to the US dollar.

The reassessment was triggered by operational and regulatory changes in the monetary landscape in Zimbabwe. On the 27th of June 2022, the Reserve Bank of Zimbabwe (“RBZ”) announced an increase in minimum lending rates for corporates from 80% to 200% effective 1 July 2022, for all local currency borrowings. Additionally, RBZ directed that 25% of the unutilized export proceeds would now be liquidated at the willing-buyer willing-seller exchange rate after 120 days from the date of receipt. This was followed by an introduction of gold coins by the Central Bank on 25 July 2022. The gold coins were going to be sold in both local currency and United States dollars. A significant proportion (more than 90%) of the coins were sold in ZWL, which mopped up the excess local currency liquidity in the market. The resultant lack of ZWL liquidity resulted in most transactions within the economy being done in USD. In his 2023 Monetary Policy Statement presentation on 2 February 2023, the RBZ Governor reported that 70% of the economy’s transactions were being completed in USD, whilst 65% of customer deposits for the banking sector are in USD. This is also evident in Simbisa’s revenue and expenditure within the period under review.

FINANCIAL PERFORMANCE HIGHLIGHTS

Key highlights are as follows:

• Revenue increased by 23% (+31% in Zimbabwe and +12% in the Region). Growth in Zimbabwe is largely from an increase in customer counts of 38.4%. In the Region, Average Spend increased by 3.8% whilst customer counts also grew by 8.3%.
• The Group recorded an increase in interest income largely from short-term financial assets.
• Profit attributable to shareholders and headline earnings increased by 32% and 16%, respectively.
• Adjusted Profit Measure – 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 remained strong at 113% of operating profit.
• The Group spent US$9,7 million on capital expansion and maintenance.
• The Group’s debt position increased from US$ 7,6 million to US$ 16,5 million to fund strategic investments in financial assets.

INTERIM DIVIDEND

The Board has resolved to declare an interim dividend of 0.88 US cents per share. Furthermore, the Board approved a dividend of US$248,569 to the Simbisa Employee Share Trust. The dividend will be payable in United States dollars on or about 20 April 2023 to shareholders registered in the books of the Company at the close of business on 14 April 2023. The last day to trade cum-divided is 11 April 2023, and the ex-dividend date is 12 April 2023.

OUTLOOK

There are exciting prospects for the Group for the remaining six months of the current financial year ending 30 June 2023. The Group expects to open a further 49 stores to close the financial year with 680 stores. The Board will continue to invest any additional free cash generated in strategic assets to achieve the Group’s overall target growth trajectory.

Zimbabwe’s economy is projected to grow in FY23 premised primarily on improved performance from mining and construction and supported by international remittances. The Board hopes that the authorities will continue to implement prudent monetary and fiscal policy measures. The Board also calls on the Government to address the confusing and largely unfair Income Tax regime for corporates, and engender fiscal and monetary policy consistency to aid in business planning.

In the Region, the Group expects tough economic conditions to persist in Kenya and Ghana with customers’ disposable income remaining under pressure. Various strategic initiatives are in place to mitigate the impact on customer counts and maintain operating margins.

Expanding our delivery business across the Group remains a priority. The Group is rolling out brand-specific delivery applications for its flagship brands to supplement the Group’s Dial-A-Delivery application. Through these brand-specific applications, customers will have access to exclusive offerings from their favorite restaurants.

APPRECIATION

On behalf of the Board, I would like to say a big thank you to our customers for their continued loyalty, and to our shareholders and other stakeholders for their support. I would also like to express my appreciation to all the Simbisa employees and management for their hard work and dedication to the success of the Group.

ABC CHINAKE
Independent Non-executive Chairman
Harare

29 April 2023

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Simbisa Brands Limited – Reviewed Interim Financial Results for HYE 31 December 2022