CHAIRMAN’S STATEMENT AND REVIEW OF OPERATIONS
DIRECTORS’ RESPONSIBILITY
The Directors of Axia Corporation Limited are responsible for the preparation and fair presentation of the Group’s consolidated financial statements and this press release is an extract thereof. The audited financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and in the manner required by the Companies and Other Business Entities Act (Chapter 24:31) and the Victoria Falls Stock Exchange (“VFEX”) listing requirements. The principal accounting policies of the Group are consistent with those applied in the previous annual financial statements.
AUDITOR’S STATEMENT
This short-form financial announcement should be read in conjunction with the complete set of the financial results for the year ended 30 June 2024, audited by BDO Zimbabwe Chartered Accountants and a qualified opinion has been issued thereon. The audit report carries a qualified opinion on non-compliance with Financial Reporting in Hyperinflationary Economies in the corresponding figures and comparative financial statements. The audit report carries a key audit matter with respect to revenue recognition. The audit opinion has been made available to management and those charged with governance of Axia Corporation Limited. The Engagement Partner responsible for the audit is Mr. Davison Madhigi (PAAB 0610).
OPERATING ENVIRONMENT AND OVERVIEW
The operating environment presented a mix of challenges and opportunities for the speciality retail and distribution businesses. Government initiatives and efforts to stabilize exchange rates in the last quarter of the financial year provided a supportive platform for volumes growth. However, persistent foreign currency shortages and competition from informal markets required adaptive strategies to sustain growth and profitability. The ongoing shift towards a more informal economy has impacted demand for some of our FMCG products in the modern trade, as certain segments of the market are able to access those products in the informal market at lower prices regardless of quality. Nonetheless, the Group has been proactively addressing this challenge and is making significant strides in reclaiming market share.
The fluctuating currency and high inflation necessitated frequent price adjustments and cost management strategies to maintain profitability. The introduction of the Zimbabwe Gold (“ZWG”) in the last quarter has shown promising signs of stabilizing the exchange rate parity between the local dollar and foreign currencies, which had directly impacted the Group, given that most of our products are imported. While the Group supports the monetary authorities’ currency reforms, we are currently affected by unpaid auction funds that were ringfenced and this has negatively impacted our working capital. Despite this, we remain hopeful that the ZWG will preserve value until the funds mature.
The Inflationary impact on Zimbabwean dollar denominated costs and realignment of United States dollar denominated cost bases affected the Group’s financial results. Management will continue to streamline expenditure by aligning to revenue generation while managing business growth and overall sustainability.
Malawi experienced moderate economic growth driven by agriculture, but the economy remained vulnerable to external shocks such as climate change and global commodity price fluctuations. Inflation was relatively moderate compared to prior year levels with occasional spikes due to food prices and fuel costs. There were pressures from trade imbalances resulting in foreign currency shortages which saw the Malawian Kwacha depreciating by 69% on the official market to close at 1,751. Strategic partnerships with local agencies led to an increase in locally sourced products being sold to the market. This initiative coupled with trading in commodities, helped mitigate some of the foreign currency challenges.
Zambia faced economic challenges with slow growth and high debt levels. Efforts to negotiate debt restructuring and engage with international lenders are still ongoing. The Zambian Kwacha experienced volatility, and inflation remained a concern, influenced by factors such as fuel prices and food costs. The Zambian Government pursued policies to stabilize the economy towards the latter part of the financial year thereby easing currency volatility.
FINANCIAL OVERVIEW
The Group reported revenue of US$193.849 million during the year, representing a 5% decline compared to the prior year. Our Distribution business in Zimbabwe revenue declined by 23% from prior year which affected the Group position. Despite the decrease in revenue, the gross margin increased by 2% from the prior year. Operating expenditure increased by 5% over prior year due to inflationary pressures on both local currency and United States dollar costs. The Group posted an operating profit of US$19.645 million, representing a 6% decline on the comparative year. Substantial once-off costs were incurred as a result of restructuring the distribution business as significant debtor and inventory balances were written off as a result of the final reconciliation processes. Management is confident that going forward, the businesses are set on a profitable trajectory. Profit after tax of US$5.964 million was reported, which was down (4%) against prior year. Headline Earnings Per Share of 0.60 US cents was 10% down on the prior year.
The Group’s statement of financial position remained strong. Total asset position increased by US$9.380 million whilst borrowings increased by 59% to fund working capital and capital expenditure.
The Group generated net cash of US$7.925 million from operating activites, representing a 10% increase on the comparative year. This translated into enhanced free cash generation enabling the Group to incur capital expenditure for the year totaling US$3.2 million and increasing its investment in Transerv. As previously communicated in the interim report, the Group increased its shareholding in Transerv from an effective 50.51% to 87.75% with effect from 1 July 2023 for a purchase consideration of US$1.8 million.
SUSTAINABILITY REPORTING
The Group continues to apply the Global Reporting Initiatives (GRI’s) Sustainability Reporting Guidelines as part of its commitment to ensuring the sustainability of its businesses. The Group will continue to uphold these practices and values across its operations to ensure that long-term business success is achieved in a sustainable manner.
OPERATIONS
The main operating business units in the Axia Corporation Limited Group are TV Sales & Home (TVSH), Distribution Group Africa (DGA) and Transerv. TVSH is Zimbabwe’s leading furniture and electronic appliance retailer with sites located countrywide. It has manufacturing business units namely Restapedic, a bed manufacturing business, and Legend Lounge, a lounge suite manufacturing business. DGA’s core areas of expertise lie in inbound clearing and bonded warehousing, ambient and chilled warehousing, logistics, marketing, sales, and merchandising services. Transerv retails automotive spares and accessories and solar products through its nationwide retail stores network and service centers.
TV Sales & Home
The year’s sales volumes increased by 15%, reaching 144,886 units sold compared to the previous year. This positive growth reflects the brand’s strength in the market, bolstered by the supply of top-quality brands and the opening of four Bedtime shops in Harare and Gweru. Additionally, the credit book remains robust, demonstrating strong performance throughout the year. The business plans to open 3 new stores in the first half of the new financial year.
At Restapedic, sales volumes increased by 54% to 41,963 units. This growth is primarily due to strong market demand and Restapedic’s improved production and supply efficiencies. Production also rose by 47% to 42,204 units, driven by enhanced capacity utilization at the new production facility in Sunway City and secured lines of credit that ensured an uninterrupted supply of raw materials. Management is aggressively pursuing initiatives to increase the presence of its products in the regional markets.
Legend Lounge experienced a 15% increase in sales volumes, culminating in 6,108 units being sold by the end of the year. This growth is attributed to heightened demand and positive market reception of the new lounge suites introduced during the year.
For the TV Sales & Home Group, growth and profitability remain the key thrust and to that end, management will focus on volume growth, growing the debtors’ book, improving gross margin dollars and managing costs.
Distribution Group Africa (DGA)- Zimbabwe
Sales volumes decreased by 45%, totaling 4,751,806 units by the end of the year. This decline is partly attributed to a strategic restructuring by management during the year, where one of the distribution companies with significant agencies transitioned into a joint venture with a major supplier. This move is aimed at alleviating working capital constraints while enhancing profitability in the newly structured business. Such sales are now reported in the joint venture and no longer included in the consolidated sales going forward. The modern trade sector continues to face significant challenges, compounded by ongoing informalization in the sector and this affected sales volumes through this channel. The business was restructured effective 1 January 2024 as there were a number of duplicated functions and processes within the distribution group. Management is optimistic that by addressing control weaknesses noted earlier, profitability shall increase in the forthcoming year.
Distribution Group Africa – Region
In Malawi, volumes remained relatively flat at 1,950,557 units in the current year compared to 1,955,462 units in the prior year. Our key strengths continue to be market coverage and trade execution, despite the challenges posed by grey products and direct imports by some of our customers. Strong collaboration with most of our suppliers has helped mitigate the impact of these grey products. However, Malawi continues to struggle with foreign currency shortages. Management will focus on initiatives to generate foreign currency to settle obligations to foreign suppliers.
DGA Zambia experienced a 14% decline in volumes for the year, totaling 745,000 units. This decline in volume and revenue is largely due to price increases implemented during the year under review, which the market is still adjusting to amidst ongoing austerity measures affecting disposable incomes. Additionally, the Zambian Kwacha depreciated by 37% against the US Dollar and 43% against the South African Rand from the end of June 2023 to the end of June 2024. Despite these challenges, the Zambian entities have managed to source sufficient foreign currency to meet their requirements.
Transerv
Transerv recorded a 6% increase in volumes to 2,988,851 units compared to the prior year resulting in 11% revenue growth. Contributing factors include the opening of eight new retail shops, three of which were launched in the last quarter, the erection of three new container shops, one in-store agent, and two service centers. Additionally, the growth in credit sales, particularly driven by the expansion of solar products sales, has played a crucial role in revenue growth. There are plans to open new shops in the first half of the new financial year as well as broadening the product range.
PROSPECTS
The Group is hopeful that the Zimbabwe Gold (ZWG) will remain stable which will help ease import costs and improve pricing stability.
Our efforts to boost demand in the formal market through close partnership with retailers have started to pay dividends. The Group will aim to increase its product offerings and consolidate its market share by continuing to look for new markets for its products.
The Group’s management teams remain committed to managing gearing levels by aligning the amount and cost of debt across the Group, enhancing free cash flow, investing free funds in high-return assets, managing foreign currency exposure, and safeguarding the balance sheet value.
The Group is looking forward to the execution of the following opportunities in the new financial year.
- Expansion of the store network at Transerv and TV Sales and Home
- Completion of the bedding manufacturing plant
- Investing in working capital to aggressively grow the debtor’s book at both Transerv and TV Sales and Home.
The Group will therefore be directing the free cash generated towards the funding of these opportunities.
The Group’s proactive measures to address economic shifts and consumer preferences will play a pivotal role in sustaining and potentially increasing market share. Overall, the combination of strategic initiatives and improved currency stability will steer the Group to an improved performance in the coming year.
DIVIDEND
The Board has decided not to declare a final dividend for the financial year ended 30 June 2024. The Group will be reinvesting most of its free funds towards the aforementioned expansion projects which are aimed at creating additional business opportunities. The Board remains committed to prudent financial management and ensuring the long-term growth and sustainability of the Group. The Board hopes to resume dividend payments at the interim stage.
APPRECIATION
I express my sincere gratitude to the Board of Directors, executives, management and staff for their ongoing efforts during the year under review. Their commitment, despite the challenging operating environment, is greatly appreciated. I also take this opportunity to thank the Group’s valued customers, suppliers and other stakeholders for their continued support and trust.
L E M NGWERUME
Chairman
26 September 2024
