Chairman’s Statement

Overview

The period under review was extremely challenging due to the effects of the Covid-19 pandemic restrictions on operations and trading hours, but Simbisa managed to produce a pleasing performance. Despite the uncertain times that lie ahead and the risk of a third wave of the pandemic, we are confident that the action plans the business has put in place will allow us to cope with the impact of the pandemic in the short-term and set the business up to take advantage of long-term growth opportunities. Our management teams and staff have responded well to the ever-changing environment and are to be commended. The results for the half-year ended 31 December 2020 bear testament to their hard work and resilience.

In this period, Simbisa emphasised focus on the well-being of both employees and customers. The Group continued enforcing strict hygiene measures in all its stores and offering free voluntary testing and counselling services to our employees. Simbisa continued to contribute to various community based Covid-19 relief measures and complemented government efforts in the fight against Covid-19.

Notwithstanding this extremely challenging environment, some of the Group’s notable achievements in the period include:

• Consistent month-on-month recovery in customer counts.
• Operating profit margins remained firm despite reduced customer counts as a result of the Group’s response on the operating expense side of the business and improved operating efficiencies.
• Net new store growth of 21 stores from the beginning of the financial year and an increase of 13 stores for the quarter. The Group celebrated its 500th store opening during the quarter. This historic milestone reinforces Simbisa’s continued commitment to grow its footprint. Simbisa closed the period with a store count of 509 stores.

The Group maintained a long-term view on growth opportunities and continued its expansion activities.

Operating Environment
The Zimbabwe operating environment remains challenging with annual inflation closing the year at 348.6% from a high of 837.5% recorded in July 2020. The re-introduction of the foreign exchange auction system in June 2020 resulted in a more stable foreign exchange system. However, pressure on disposable incomes persisted over the period. The business impact of Covid-19 gradually eased over the reporting period as restrictions were relaxed and Covid-19 cases remained under control until mid-way through December 2020. Stricter Covid-19 trading restrictions were reintroduced subsequent to the reporting date, from 4 January 2021, following a surge in Covid-19 cases. These have however since been relaxed.

In the period there was a steady lifting of Covid-19 trading restrictions in most of our Regional markets, with all stores operating over the period. Trading hours restrictions remained in Kenya and Namibia although they were progressively relaxed. “Sit-down” service restrictions have been lifted in all our markets, albeit at reduced capacity to maintain safe social distance. However, social and economic activities remained depressed compared to the same period last year.

Significant accounting and reporting matters
Partial compliance with International Financial Reporting Standards
Whilst the Group has complied fully with IFRS in the past, the market-wide impracticability in achieving full compliance with IFRS, specifically, International Accounting Standard (‘IAS’) 21. The Effects of Changes in Exchange Rates,’ and its consequential effect on IAS 29, ‘ Financial reporting in Hyperinflationary Economies,’and IAS 8, ‘Accounting Policies, Changes in Accounting Estimates and Errors’; persisted. The matters, described in full in the annual financial statements for the year ended 30 June 2020, remain unresolved in the Zimbabwean market and affect the comparability of current period results and corresponding prior-year results. For these reasons, the Independent Auditors have issued an adverse review conclusion on the Group’s financial results for the half-year ended 31 December 2020. The Directors advise users of the financial results to exercise due caution concerning the corresponding previous year’s results.

Financial performance highlights

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

• Revenue increased by 101% (+44% in Zimbabwe and +500% in the Region). Growth in Zimbabwe is mainly driven by a 56% increase in average spend.  In the Region, whilst revenue fell by 14% in USD terms, driven by a 19% decline in customer counts offset by a 6% increase in average spend, translation into Zimbabwean dollars reflects a 500% growth.
• Operating profit increased by 75%. Profit attributable to shareholders and headline earnings increased by 91%.
• The Group recognised a net monetary gain of ZWL148 million.
• The Group recorded foreign currency exchange and other gains of ZWL530 million mainly comprised of foreign exchange gains on the net foreign currency position in Zimbabwe.
• Cash generated from operations was very strong at ZWL2.0 billion. Amounts spent on investing activities was ZWL1.3billion including ZWL663 million in short-term financial assets. Total capital expenditure for the period was ZWL644 million (ZWL 250million in Zimbabwe and ZWL 395 million in the Region).
• The Group’s cash and liquidity position remains strong. Total debt (excluding IFRS 16 liabilities) was $1.9 billion. The Group had cash and cash equivalents of $1.9 billion resulting in a neutral net debt position.

The Board has resolved to declare an interim dividend of ZWL 53 cents per share (FY20: ZWL 5.07 cents per share). Furthermore, the board approved a dividend of ZWL 14 897 897 to the Simbisa Employee Share Trust. The dividend will be payable in Zimbabwe dollars on or about 30 April 2021 to shareholders registered in the books of the Company close of business on 16 April 2021. The last day to trade cum-divided is 13 April 2021 and the ex-dividend date 14 April 2021.

Corporate Governance
As announced by the Company and approved by shareholders at the Company’s 5TH Annual General Meeting, the Board of Directors appointed Mrs. Jaqueline Hussein as an Independent Non-Executive Director of the Company with effect from 1 January 2021. Mrs. Hussein brings a wealth of experience and expertise as a chartered accountant registered and having practiced in South Africa and Zimbabwe. She currently runs her own firm of public accountants, July28, and sits as a non-executive director of companies in Zimbabwe and Zambia. The Board welcomes Jackie and looks forward to her contribution to the Company.

Treasury Shares
The Company bought back 2 500 900 of its own shares in line with the authority granted at the last Annual General Meeting. Cumulatively, the Company now holds 3 559 073 treasury shares.

Outlook
Although conditions surrounding the coronavirus have been stable in the majority of Simbisa’s operating countries, it is hard to accurately predict the future developments as regards the pandemic and the extent of its continued negative impact in all economies. The resurgence in infection rates, such as that occurred in Zimbabwe in January continues to affect recovery efforts. The Board welcomes the approval by the Government of Zimbabwe for private sector importation of approved vaccines and advises that it is at an advanced stage of sourcing and providing free and voluntary vaccinations to all its employees before the end of this financial year.

The Authorities in Zimbabwe continue to introduce and put into effect market reforms that have stabilised the local currency and appear to have tamed rampant inflation. For this we commend them. However, we urge the Authorities to fine tune the reforms further by for instance removing the remaining foreign exchange and pricing arbitrage opportunities that arise from the growing disparity between the auction rate and the so called “market rates” which may hurt the progress achieved to date.

We therefore believe that we are well-positioned to navigate the challenges ahead successfully, due inter alia to our geographically diversified store network, strength of our take-away channel and fast-growing delivery and drive-thru channels. We continue to make progress towards long-term growth and explore new possibilities for operational optimisation as we gear up to ease into a post-Covid-19 world, with a pipeline of 38 new stores for the remaining six months of the financial year.

Appreciation
On behalf of the Board, I would like to express my gratitude, and appreciation to our staff, management, and the executive team for their incredible dedication to duty, self-sacrifice, commitment, and continued hard work during this Covid-19 period.

I also thank our loyal customers for their continued support and acknowledge the contributions of our suppliers, business associates, and stakeholders to our success.

ABC CHINAKE
Independent Non-executive Chairman