Axia Corporation Limited, listed on the Zimbabwe Stock Exchange under the share code AXIA, is a homeware furniture and electrical appliances retail enterprise that also retails automotive spares.
Axia Corporation Limited’s revenue grew 31% to US$275.925 million for the year ended. The group’s operating profit was US$25.808 million and profit before tax was US$24.335 million. The Zimbabwean Distribution Group Africa (DGA) revenue growth increased by 17%. Malawi and Zambia both experienced 32% growth in revenue. Right pricing aided in the 31% overall revenue growth of the group’s subsidiary Transerv. Axia Corporation Limited remains acquisitive and expects organic growth by way of active consideration of expansion opportunities.
The following is an excerpt from the Chairman’s statement:
FINANCIAL OVERVIEW
The Group registered a good performance in an environment of increased risks and opportunities and notwithstanding some challenges characterized by delays in making foreign payments to suppliers of goods and services, difficulties in securing import permits and constraints in the supply of some local products.
The Group reported revenue of US$275.925 million during the year to achieve a 31% growth on the comparative period. The Group sustained growth in profitability by recording an operating profit of US$25.808 million and a profit before tax of US$24.335 million for the year notwithstanding substantial once-off legacy charges recorded in the distribution businesses. Most of these once-off charges were incurred as a result of derecognising some historical debtors and inventory balances that arose as a result of a compromised control and governance environment. Management has dealt with the control environment issues and believes that they have cleared all historical balances as part of the balance sheet restructuring exercise in the affected subsidiaries.
Basic and Headline earnings per share for the year amounted to 2.02 US cents. Headline earnings were 47% above the comparative period and when adjusted for income earned on the derivative option, were 28% above prior year at 1.76 US cents.
Significant focus was placed on reducing the Group’s foreign creditor positions and to secure additional inventory as a way to ensure superior offerings to customers. Although this has resulted in a significantly changed working capital profile, the Group managed to generate cash from operating activities.
The Group’s capital expenditure for the year totalled US$3.997 million. Net borrowings have increased by US$10.558 million mainly to support strategic working capital investments resulting in increased gearing.
As advised in the interim report, the Board reassessed its position of control of Transerv, where the Group has an effective 26.01% share. The Group has equity accounted the results of Transerv and will only consolidate the business when an effective holding above 50% is achieved.
Following this reassessment, the comparative Statement of Profit or Loss and Other Comprehensive Income has been restated, together with the Statements of Financial Position, Statement of Changes in Equity and Statement of Cashflows to show the effect of equity-accounting for Transerv.
In addition, through a scheme of reconstruction, the Group has consolidated the results of Hat On Investments (Pvt) Ltd (“Hat On”) and Baobab Africa (Pvt) Ltd (“Baobab”) through its subsidiary Distribution Group Africa (Pvt) Ltd (“DGA”), with effect from 1 July 2017. The change in accounting treatment is notwithstanding the fact that there has been no change in the Group’s effective shareholding in Baobab whilst the effective shareholding in Hat On increased by 0.02%. This change will improve efficiency in reporting, monitoring and control and other administrative work in the distribution business. The acquisition of Hat On and Baobab by DGA Zimbabwe resulted in goodwill of US$0.42 million on consolidation of DGA. Management has decided to immediately impair the US$0.42 million goodwill.
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 the 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 achieved a great result with a 19% increase in units sold over the prior year, which translated into a turnover growth of 36% driven by significant growth in both cash and lay bye sales. The instalment debtors’ book decreased by 11% over the comparative period as credit sales slowed in the first half of the financial year. Credit sales grew in the last quarter of the financial year, arising from promotions and credit deals which were well received by the market and are promising to show significant growth in the new trading year. The quality of the book remained good throughout the year.
Inventory levels remain good and more focus has been placed on locally manufactured goods. The local manufacturers have managed to supply stock at a very good rate, however these partnerships are key in ensuring that supplies remain high. Management has continued to support the key suppliers to assure continuity of production.
The business has continued to grow its store network by opening three new stores, two in Harare and one in Kadoma, whilst an underperforming store in Harare was closed during the financial year. This brought the total store network at June 2018 up to 43 outlets countrywide. The refurbished Borrowdale, Sam Levy Village, store has become the flagship store in the store network. Sites for additional stores have been identified and such stores are set to open before the end of the first half of the new financial year, in time for the peak trading season. Six stores were upgraded during the financial year and more stores are scheduled for upgrades, to world class standards, in the current financial year.
Distribution Group Africa – Zimbabwe
The Zimbabwean distribution group houses a number of leading brands such as Colgate, Kellogg’s, Johnson & Johnson, Tiger Brands, Unilever, Rhodes, Pioneer, Irvines, Probrands and Pepsi. The business delivered a reasonably good set of results despite the issues of local supply stock outs, import permits, settling foreign suppliers as well as once-off charges processed during the financial year. DGA Zimbabwe recorded a 17% revenue growth over the comparative period owing to acquisition of subsidiary companies, Hat On and Baobab, as well as growth in existing business. Operating profit was 25% up from prior year.
As reported at half year, DGA (Zimbabwe and Region) was named as the 2017 “Johnson & Johnson – Distributor of the year in Africa”, the 2017 “Colgate Palmolive Best Modern Trade Distributor in Africa” as well as a couple of awards from other principals like Pioneer Foods and Varun Beverages (Pepsi). This is as a result of management’s drive to grow volumes. Management recognises that there remains a number of cases of duplicated functions and processes within the distribution group. Therefore, focus will also be directed towards rationalising these as necessary to enhance monitoring and control of this operation. Management is optimistic that by addressing control weaknesses noted during the year, profitability should increase in the fourthcoming year. Distribution Group Africa – Region The regional operations reported a mixed set of results. Due to the competitive nature of the environment in the region, the growth in turnover did not translate into the desired profit return. Despite this, regional operations remain a critical component of the Group’s distribution footprint to represent agencies held in Zimbabwe.
Malawi
Malawi recorded revenue growth of 32%, buoyed by an increase in the formal retail sector and the introduction of new principals such as Nestle and the re-launch of the Colgate Toothpaste 35g product. Growth in revenue filtered through to gross margin resulting in an increase in operating profit. Zambia In Zambia, revenue grew by 32% as a result of introduction of new product lines such as Fruit Tree and Tiger Brands. The growth was however achieved at low margin coupled with significant stock write offs on the back of the weakening local currency resulting in the business making a loss for the year. The business however retained all agencies and is well placed to continue servicing the Zambian retail sector.
Transerv
Transerv recorded an overall revenue growth of 31% against prior year. Volumes increased in the last quarter of the year, owing to right pricing and product availability. The business managed to maintain its footprint, across the country, as at previous financial year end. As advised in the interim report, an additional fitment center in Harare was opened in the first quarter of the financial year whilst an underperforming fitment center in Harare was closed. The one-stop concept of paired retail and Fitment Centers is giving the customer enhanced convenience and this has seen increased throughput. Management will continuously focus on procuring the right stock mix at the right price and continue to improve margins and profitability.
PROSPECTS
The Group is hopeful that in the medium to long term, the country will restore business confidence and offer good prospects for sustainable growth despite the current prevailing economic realities. The Group will continue to manage inventory levels and meet its foreign payments timeously.
The Group maintains its goal to achieve organic and acquisitive growth, improve margins, grow volumes, generate free cash and continue to operate profitably and should thus create value for all stakeholders. Therefore, the Group will continue to scan the market for investment opportunities, to expand existing operations and to add synergistic and complimentary businesses in the speciality retail space as well as backward integrate into manufacturing to establish a ready export market through retail offering in the region as well as to improve its local penetration.
DIVIDEND
The Board has declared a final dividend of 0.32 US cents per share in respect of all ordinary shares of the Company. The dividend is payable in respect of the financial year ended 30 June 2018 and will be paid in full to all shareholders of the Company registered at close of business on the 12th of October 2018. The payment of this dividend will take place on or around the 23rd of October 2018. The shares of the Company will be traded cum-dividend on the Zimbabwe Stock Exchange up to the market day of 9th of October and ex-dividend as from the 10th of October 2018.
The Board has also declared a final dividend totalling US$86,000 to the Axia Corporation Employee Share Trust (Private) Limited which will be paid on the same date.
