We have extracted the financial summary from the interim half year report of Axia Corporation Limited listed on the Zimbabwe Stock Exchange under the share code AXIA.zw. Axia Corporation is a retail enterprise that trades homeware furniture and electrical appliances and automotive spares through 38 nationwide retail outlets and in Zambia and Malawi.
The following is an excerpt from the interim half year report;
Financial update
The Company posted positive results, ensuring shareholders continue to earn a return through dividend and sustained share price growth.
FINANCIAL OVERVIEW
The period under review was generally faced with difficult trading conditions. The challenges faced in the economic environment were characterized by constraints in the supply of some local products and foreign currency constraints. Despite these factors, the Group’s business units were resilient and this helped the Group to register a good performance.
As part of the Group’s objectives to achieve organic and acquisitive growth as well as backward integration into manufacturing, the Group, through its subsidiary TV Sales & Home, successfully concluded the acquisition of a 49% shareholding in Maton (Private) Limited t/a Restapedic, a bedding manufacturing business. An amount of US$2,468 million was paid for the investment. Restapedic is a synergistic business to the Group’s portfolio which, together with other suppliers, will help in securing the supply chain of bedding units for TV Sales & Home. Competitions and Tariffs Commission approval for this transaction was obtained in January 2019.
The Group reported revenue of US$234.098 million during the period to achieve a 74% growth on the comparative period. This was driven by a mixed volume performance across operations. Inflationary pressures continued across the board with respect to both stock inputs and operating expenditure, particularly in the latter part of the financial period under review. Despite the inflationary pressures on costs, the Group sustained growth in profitability by recording an operating profit of US$22.368 million, representing a 68% growth on the comparative period. The financial income line is mainly comprised of income earned on the derivative option and this was adjusted by unrealized exchange losses arising out of the valuation of foreign creditors. Equity accounted earnings are mainly comprised of the results of Transerv and Restapedic. All business units with equity accounted results have performed well and Restapedic has contributed a reasonable amount. Overall, profit before tax at US$22.750 million for the period was 65% above the comparative period. Basic and Headline earnings per share for the period improved by 52% to 1.81 US cents. The Group contributed US$2.086 million to the fiscus through the Intermediated Money Transfer Tax since it was increased from 5 cents per transaction to 2%, per dollar value from $10 to a limit of $500,000, in October 2018.
The Group’s statement of financial position remained solid. Managing foreign creditor positions and securing additional inventory will remain key focus areas and this will be done in tandem with environmental changes. Net borrowings have decreased by US$11.273 million mainly as a result of increased cash sales and aggressive collection of trade receivables which improved cash and cash equivalents balances resulting in decreased gearing.
The Group generated cash of US$16.257 million from operating activities against US$1.081 million in the comparative period. The Group’s capital expenditure for the period totalled US$1.641 million and this was limited to critical maintenance and expansion projects as these were also affected by inflationary pressures.
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. 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, by utilising multiple channels to service the needs of its customers.
TV Sales & Home
TV Sales & Home had a strong first half of the financial year with a 35% increase in units sold over the comparative period, which translated into a turnover growth of 63%. The turnover growth was driven by significant growth in both cash and credit sales. The instalment debtors’ book increased by 51% over the comparative period and this has been consistent with increased credit sales as anticipated. The quality of the book remained good throughout the period.
Inventory levels remain good and support for local suppliers has continued to ensure uninterrupted supply of all key furniture lines. This has continued to be a success and the business will continue to foster such partnerships to promote local production. As these
partnerships are key in ensuring that supplies remain high, the business acquired a 49% stake in Maton (Private) Limited t/a Restapedic, a bed manufacturing outfit, as earlier explained in the financial overview.
The business has continued to grow its store network by opening two new stores, one each in Masvingo and Banket during the period under review. Four new stores are scheduled to open in the second half of the financial year and upgrades of existing stores are now underway to vastly improve the shopping experience.
Distribution Group Africa – Zimbabwe
The Zimbabwean distribution business delivered a good set of results during the period under review. Turnover grew by 91% over the comparative period owing to growth in existing business and some price increases. The swing towards more local sales has helped especially in this challenging economic environment where foreign currency has become scarce. Operating profit was more than 100% up from prior year.
Management will continue focusing on driving volumes growth and ensuring visibility of their principals’ products. The business will continuously look for other opportunities to reduce foreign currency requirements for imports. Since the last reporting period, management witnessed improvement in the control environment thus enabling efficiencies and profit generation. Monitoring and control of this business operation will remain key.
Distribution Group Africa – Region
The regional operations reported a mixed set of results. The trading environment in the region has been quite challenging. The regional operations remain a critical component of the group’s distribution footprint to represent agencies held in Zimbabwe.
Malawi
Malawi recorded a decline in revenue of 6% mainly as a result of some customers being put on stop supply, for the greater part of the period under review, as they exceeded their credit terms. The business resumed trading with those customers who were on stop supply in November and December 2018 and revenue is expected to grow in the second half of the financial year. The business’ operating profit marginally increased over the comparative period as costs were well managed.
Zambia
In Zambia, revenue grew by 14% as a result of the introduction of new agencies such as Rhodes and growth in existing business. The growth was however achieved at low margin. The low gross margin coupled with significant stock write offs on the back of over stocks and customer returns resulted in the business making an operating loss for the period. The forward
exchange contracts taken to hedge against foreign exchange risk have significantly enabled the business to generate profit before taxation.
Transerv
Despite the onerous trading environment, Transerv recorded a marginal revenue growth of 4% over the comparative period. The business continued with its focus on ensuring product availability and at the right pricing. The business managed to maintain its footprint across the country, and has ensured that its customers have access to products as and when required.
Transerv will be celebrating its 10-year anniversary in May 2019. The 10-year journey has seen the business grow to a network of 24 (21 Transerv and 3 Midas) trading outlets, 15 Fitment Centers, an Auto Cycle Centre, Zimbabwe Spares Wholesalers, a diesel pump room (ADCO) and a Clutch and Break Specialists (CBS). Its staff compliment has also grown to 350 employees.
PROSPECTS
The Group is very hopeful about the country’s prospects and growth potential despite the current prevailing economic realities which are likely to persist in the short to medium term. The Group is looking into expansion projects, that will enable sustainable growth thus creating value for all stakeholders, even as the macro- economic environment is full of risks.
The sourcing of foreign currency to procure inventory and settle foreign suppliers remains a priority for the Group. Given the Group’s portfolio of business units that require about 50% of its inventory being imported, it will be imperative to evaluate investment opportunities with export potential even if they are outside the Group’s speciality retail and distribution space. The Group would like to consolidate its position in the market despite competition by: expanding product range and footprints, continuing to build its brands to be the biggest in speciality retail and distribution, growing volumes, generating free cash and continuing to operate profitably.
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