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 results and this press release represents an extract thereof. The reviewed interim financial results have been prepared in accordance with International Accounting Standard 34: Interim Financial Reporting and in the manner required by the Companies and Other Business Entities Act (Chapter 24:31) and the Zimbabwe Stock Exchange listing requirements. The principal accounting policies of the Group are consistent with those applied in the previous annual financial statements.
AUDITOR’S STATEMENT
The reviewed interim financial results for the six months ended 31 December 2021 have been reviewed by Deloitte & Touche, Chartered Accountants (Zimbabwe) and a modified review conclusion has been issued thereon. The reviewed report carries an adverse conclusion with respect to non-compliance with International Accounting Standard 21: The Effects of Changes in Foreign Exchange Rates. The review conclusion has been made available to management and those charged with governance of Axia Corporation Limited. The Engagement Partner responsible for the review is Mr. Stelios Michael.
COMPLIANCE WITH INTERNATIONAL ACCOUNTING STANDARD 29: FINANCIAL REPORTING IN HYPERINFLATIONARY ECONOMIES
The Group adopted the Zimbabwe Consumer Price Index (CPI) as the general price index to restate transactions and balances as appropriate. Non-monetary assets and liabilities carried at historic cost have been restated to reflect the change in the general price index. Monetary assets and liabilities and non-monetary assets and liabilities carried at revalued amounts have not been restated as they are presented at the measuring unit current at the end of the reporting period. Items recognized in the statement of profit or loss have been restated by applying the change in the general price index from the dates when the transactions were initially earned or incurred. A net monetary adjustment was recognized in the statement of profit or loss. All items in the statement of cash flows are expressed in terms of the general price index at the end of the reporting period. Comparative amounts in the Group financial results have been adjusted to reflect the change in the general price index. Interim financial results prepared under the historical cost convention have also been presented as supplementary information. The auditor has not expressed any review conclusion on these historical results.
The CPI increased from 2,986.4 in June 2021 to 3,977.5 in December 2021, representing a 33% increase in the period under review, this is compared to the Reserve Bank of Zimbabwe Auction rate which increased by 29% during the same period. Due to the disparities currently prevailing in the economy, significant distortions can occur in the preparation of inflation-adjusted financial statements in accordance with the requirements of IAS 29. Of significance in the inflation-adjusted financial statements is a net monetary loss of ZWL$ 238.912 million in the current period.
OPERATING ENVIRONMENT AND OVERVIEW
In the six months to 31 December 2021, the trading environment was characterized by increased levels of inflation, unstable exchange rates and uncertainty. With the easing of COVID-19 lockdown restrictions, business activity improved across the region before the onset of the fourth wave in December 2021. Improved business activity resulted in the Group businesses recording volume growth except for the distribution businesses in Zimbabwe and Zambia. In Zimbabwe, the consumer disposable income benefited from increased economic activity driven by infrastructure spending, improved mining activity and better agriculture output. The increased use of foreign currency in the local market enabled businesses to generate foreign currency which will help the Group to undertake critical capital investments. However, the widening of the gap between the official auction and parallel market exchange rates present pricing and value-preservation challenges to the businesses. The result of this growing level of arbitrage and market distortions have negative effects on the entire economy.
The indexed cost base and high interest rates had a significant impact on the Group’s financial results. Management will continue to adapt business units’ operating models to manage business growth and sustainability.
FINANCIAL OVERVIEW
Commentary of the Group’s financial results is confined to the financial information prepared under the historical cost convention.
The impact of improved business activity during the reporting period improved demand resulting in volumes above those reported in the comparative period. The Group reported revenue of ZWL$15.168 billion during the period to achieve a 70% growth compared to the prior comparative period. The revenue growth filtered into gross margin which increased by 93% on prior period. Operating expenditure increased by 105% on comparative period due to certain indexed cost base. The Group posted an operating profit of ZWL$3.194 billion, representing an 84% increase on the comparative period. Profit before tax of ZWL$3.462 billion was reported which was 88% ahead of prior period. Basic Earnings Per Share and Headline Earnings Per Share both improved by 81%.
The Group’s statement of financial position remained solid. Net borrowings decreased by ZWL$1.19 billion as a result of improved cash sales which improved cash and cash equivalents balances resulting in decreased gearing.
The Group generated cash of ZWL$2.481 billion from operations which was up 577% from the comparative period. This translated into enhanced free cash generation enabling the Group to easily incur capital expenditure for the period totaling ZWL$217.373 million. The Group’s free cash generation will enable it to execute its exciting expansion opportunities.
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 and accessories through retail stores and fitment centers to service the needs of its customers.
TV Sales & Home
Although the COVID-19 pandemic continued to pose a myriad of risks, the TVSH group remained focused on driving revenue by taking full advantage of the significantly eased lockdown restrictions since September 2021. The business was able to capitalise on the resumption to normal working hours and improved supply chains. A revenue growth of 115% to prior year was recorded in the first half of the financial year whilst volume performance increased by 10% over prior year. Second quarter volume performance was up 4% compared to the same period in prior year attributable to successful market activation promotions namely Black Friday and Ho-Ho-Home which were well received by consumers. The debtors’ book grew by 102% in value and collections on the book have remained solid.
As part of investing in production facilities to boost bed production at Restapedic, TV Sales & Home increased its shareholding in Restapedic from 49% to 60% effective 1 July 2021. An amount of US$860,000 was paid for this extra investment. This increase in shareholding enabled Restapedic to invest in a 10,000 bed production facility which is under construction in Sunway City, Harare and is estimated to cost US$4.5 million. Completion of building the factory is estimated to be November 2022. Restapedic bedding attained revenue and volume growth of 33% and 5% respectively compared to prior period.
The lounge suite manufacturing business is on a positive trajectory with revenue and volume performance up 369% and 325% to the comparative period respectively. This performance is attributable to continuous product innovations. TVSH remain focused on giving its customers a world class experience in its retail stores as evidenced by completion of store refurbishment works in Gweru during the period under review. Store refurbishments will continue during the second half of the financial year. The business will continue to expand its retail footprint with a target to open two new retail stores in Harare and one in Bulawayo in the second half of the financial year.
Management will continue to apply mitigatory means to ensure that inflation coupled with the effects of the pandemic do not negatively affect the business’ objective of consistent quality product supply.
Distribution Group Africa – Zimbabwe
Management continued to steer the distribution business group professionally and within the confines of regulatory requirements within each jurisdiction. In Zimbabwe, turnover grew by 46% against same period last year. Volumes declined by 22% from same period last year, mainly as a result of discontinuation of ProGroup wholesale business without significant financial impact. The business continues to safeguard and grow shareholder value by embarking on projects that generate positive cash flows and achieve the required returns. Management endeavours to maintain the business’ going concern and to propel the business to remain the market leader in the markets that it services.
Management will focus on business re-engineering and remain at the frontier of bringing innovative and value adding solutions in all the business’ product offerings. Management will continue to maximise the scalability of all the distribution group businesses to bring about the desired cost efficiencies.
Distribution Group Africa – Region
The new government in Zambia brought about much needed stability to the Zambian currency making planning more predictable.
Malawi continues to face shortages of foreign currency. However, the addition of two key distribution agencies in the first quarter of the financial year resulted in improved profitability for Malawi. The combined USD revenue for the regional businesses grew by 53% owing mostly to the new agencies taken on in Malawi. In Zambia, the strengthening Kwacha encouraged the business to take advantage of Forward Exchange Contracts thus enabling pricing at reasonable rates. This enabled the Zambian entity to grow revenues by 21% and improve profitability by over 100%. The combined USD Gross margin for the regional businesses was up 46% as a result of additional distribution agencies established in Malawi. Going forward, management will focus on managing foreign suppliers and ways to generate foreign currency to settle foreign suppliers. New agencies will continuously be evaluated and targeted.
Transerv
The Company has remained profitable despite major challenges in obtaining foreign currency to always ensure adequate stocking levels. Turnover for the first half increased by 81% over the comparative period which was underpinned by volumes growth of 13%. Management will continue to focus on improving revenue generation, obtaining the right stock mix and managing the operating costs to ensure that the business improves its profitability. In the second half of the financial year, management will concentrate on expanding the store network throughout the country with the aim of bringing convenience and providing an excellent customer service. In January 2022 a new branch was opened in Chiredzi. Branches in Victoria Falls, Avondale fitment centre (formerly Autocycle) and a fitment centre at the Chikwanha retail shop are all at advanced stages of opening in the next few months. Management is also looking forward to opening stores in Karoi and Zvishavane before the end of the financial year.
IMPACT OF COVID-19
The Group remains focused on ensuring the safety and health of its employees, customers and other stakeholders and thus, will continue to implement and observe COVID-19 guidelines approved by the World Health Organisation and the Ministry of Health and Child Welfare, throughout its operations. The Group applauds the Government on the nationwide vaccination program for COVID-19 and has been encouraging its employees to make use of this opportunity to get vaccinated.
The impact of COVID-19 on businesses globally is and will continue to be significant. Given the ongoing uncertainty around the impact and conclusion of COVID-19, it is not possible to assess, with certainty the full impact the pandemic will have on the Group’s financial performance. At present, the financial status of the Group remains healthy, and the impact of COVID-19 has not created any issues from a solvency or liquidity perspective. The Group remains resilient and determined to withstand the risks associated with COVID-19.
PROSPECTS
With the ongoing COVID-19 related cost restrictions periodically affecting global supply chains, management will continue to assess all supply chain constraints for imported and local goods and will thus be working closely with suppliers to ensure adequate product supply. As the business emerges out of the restrictive and disruptive environment surrounding the COVID-19 pandemic, the Group remains optimistic and will continue to focus on its ongoing business optimization and expansion initiatives.
The Zimbabwean business environment remains complex with challenges caused by high inflation. We remain hopeful that progressive and consistent policies will be adopted and that they will be aimed at building confidence in the market.
The Group’s management teams will continue to optimally manage gearing levels, that is to align the quantum and cost of debt deployed across the Group. There will be added focus on:
- improving free cash flows,ï investing free cash flows into assets with attractive returns,
- managing foreign currency exposure, and
- protecting the balance sheet in real terms.
The Group is also looking forward to the execution and completion of its exciting opportunities – bed and lounge suite production facilities, expanding retail store networks as well as optimizing major distribution agencies in Zimbabwe and the region.
DIVIDEND
The Board has declared an interim cash dividend of ZWL66 cents per share (2021: ZWL 24.5 cents) in respect of all ordinary shares of the Company. The dividend is payable in respect of the interim period ended 31 December 2021 and will be paid in full to all shareholders of the Company registered at close of business on the 8th of April 2022. The payment of this dividend will take place on or around the 15th of April 2022. The shares of the Company will be traded cum- dividend on the Zimbabwe Stock Exchange up to the 5th of April 2022 and ex-dividend as from the 6th of April 2022.
The Board has also declared an interim dividend totaling ZWL$18.1 million to the Axia Employee Share Trust (Private) Limited which will be paid on the same date.
APPRECIATION
I express my sincere gratitude to the Board of Directors, executives, management and staff for their ongoing efforts during the period 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
24 March 2022
