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 represents an extract thereof. The reviewed interim financial results have been prepared in accordance with International Financial 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 2020 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.
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 to reflect the change in the general price index. The auditor has not expressed any review conclusion on these historical results.
OPERATING ENVIRONMENT AND OVERVIEW
In the six months period to 31 December 2020, the operating environment was underpinned by the easing of Covid-19 lockdown restrictions, a relatively stable currency and a decline in inflation which led to improved business activities.
The introduction of the foreign currency auction system in June 2020 is encouraging and played a critical role in stabilizing the exchange rate which has helped businesses to plan better during the period. The Group is hopeful that this auction system will continue to ensure that payments to foreign suppliers will be met, despite some delays being experienced in receiving the auction money. The relatively stable environment has given rise to the anticipated correction of gross margins across the Group’s businesses in Zimbabwe. This resulted in decent volume growth.
However, the indexed cost base due to inflationary pressures and high interest rates had a significant impact on the Group’s financial results. Management will proactively refine business models to manage ever-changing operating costs, working capital levels as well as protect the business units balance sheets in real terms. The Group’s business units were resilient despite some adverse factors and this helped the Group to record a fair performance.
FINANCIAL OVERVIEW (COMMENTARY BASED ON INFLATION ADJUSTED RESULTS)
The Group reported revenue of ZWL$9.711 billion during the period to achieve a 28% growth compared to the prior period. The impact of a stable exchange rate positively affected demand, thus turnover volumes were above those traded in the prior period. The Group sustained growth in profitability by recording an operating profit of ZWL$1.108 billion, representing an 8% growth on the comparative period. Financial income line is mainly comprised of unrealized exchange gains on foreign denominated cash and cash equivalents. Equity accounted earnings are mainly comprised of the results of Restapedic Bedding. Basic Earnings Per Share and Headline Earnings Per Share both improved by 27% and 29% respectively.
Borrowings have increased by ZWL$464 million mainly to support strategic working capital investments.
The Group generated cash of ZWL$157 million from operations which was up 241% from the comparative period. The Group’s capital expenditure for the period totaled ZWL$203 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 and accessories by utilising multiple channels to service the needs of its customers.
TV Sales & Home
TV Sales & Home recorded a decent set of results. Turnover was 30% above prior year, with volumes 40% above the comparative period. The volume growth was driven by an increase in the store network, increased promotional activity and the reintroduction of credit sales. This is encouraging as the period under review was characterised by relative price stability across the value chain. The black Friday promotion was very successful with very pleasing volumes on the day making up a significant portion of monthly turnover. The debtors’ book grew by 130% in value and collections on the book have remained good.
Inventory holding remains good as our relationships with local suppliers continue to support the value chain. TV Sales & Home will continue to focus on products from local suppliers as they have proved critical in the business’ operations. The manufacturing units have continued to grow their volumes with Restapedic producing 35% more volumes than they achieved in the comparative period whilst Legend Lounge witnessed volumes growth above 100%. Plans are underway to increase the capacity of the manufacturing businesses as a way to meet product demand and to gear for export markets.
The business has continued to grow its store network by opening its 50th store in Mutare, which is now our largest store by trading area. This store has contributed significantly to the growth in volumes over the period. Growth remains the key focus and the business will continue to grow its store network, with a new store scheduled to open in Ruwa, in the third quarter of the financial year.
Distribution Group Africa – Zimbabwe
The distribution business in Zimbabwe delivered a fair set of results. Turnover increased by 6% on the prior comparative period, with volumes growth of 4% on the comparative period. Volumes growth was largely driven by local products which do not require sourcing of foreign currency thus were reasonably priced. The business continues to preserve its balance sheet in real terms and will also be focusing on improving volumes. Management expects this business to continue to grow in the foreseeable future and become a dominant player in its sector.
Management has been improving the logistics and distribution model by distributing some products directly from source to the market, thus avoiding duplications and improving efficiencies. The business recently concluded a major local distribution agency with effect from 1 April 2021 which will positively contribute to operating profit.
Distribution Group Africa – Region
The regional operations continue to operate in challenging local environments. In Zambia, the economy has experienced resurgent inflation and currency depreciation. Consolidated turnover for Zambia and Malawi, in US$ terms, declined by 16% over the comparative period.
The decline in turnover was a result of a distributorship agency business which was discontinued in Zambia as well as shrinking modern trade space in Malawi due to the harsh economic environment created by the COVID-19 pandemic. Gross margin was up 4%, despite decline in revenue while operating costs were below the prior comparative period resulting in a decent operating profit which increased by 49% on the comparative period. This however, was diluted by significant exchange losses in Zambia as the local currency depreciated by 39% and 16% to the South African Rand and US$ respectively, resulting in a decline in profit before tax. The regional businesses remain strategic to the Group. Given the challenging regional operating environments, the regional business model will continuously be aligned to the Group model on operating standards.
Transerv
Despite the continued challenging trading environment, Transerv remained profitable. While the effects of the COVID-19 pandemic were felt in the supply chain, the business managed to achieve an operating profit growth of 22% on the comparative period. The business witnessed a decent increase in volumes over the comparative period. Transerv will continue focusing on fast moving product lines and maintain grip on cost control. The business completed its rebranding program where all former MIDAS franchised retail stores have been rebranded to Transerv.
Renovations were completed on 4 retail outlets and 1 fitment center, giving a much-improved customer experience. Management will continue to explore ways to improve revenue generation (increasing volumes) as well as expanding the store footprint.
IMPACT OF COVID-19
The COVID-19 infections rose sharply towards the end of December 2020 leading to the tightening of the restrictions across the region. Sadly, the Group has not been spared as we lost Patricia Zichawo from TV Sales & Home and Neverson Bikwa from Transerv. We commiserate with their families.
The Government of Zimbabwe implemented level 4 lockdown since 5 January 2021. The lockdown measures reduced economic activity as there were disruptions to normal business operations. The Group’s retail business TV Sales & Home was significantly affected as it was not fully operational whilst Transerv and DGA were operating at reduced levels with minimal staff as they are part of essential services. The regional distribution businesses were not affected as they continued operating with no effective lockdowns in Zambia or Malawi.
In the midst of the COVID-19 pandemic, 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 impact of COVID-19 on businesses globally is and will continue to be significant. The Group remains resilient and determined to withstand the risks associated with COVID-19. There are many uncertainties that make it difficult to fully estimate the full impact of the COVID-19 pandemic on the financial health of the Group entities. At present, the financial status of the Group remains healthy, and the impact of the COVID-19 has not created any issues from a solvency or liquidity perspective. The Group believes its businesses will continue to thrive based on its dedicated staff, adaptable business models as well as its desire to improve, win and create value.
PROSPECTS
The operating environment remains uncertain due to the COVID-19 pandemic which continues to evolve. The supply of key raw materials is stable although there could be logistical challenges arising from the COVID-19 restrictions. Management will continue to assess all supply chain constraints for imported and local goods and will be working closely with suppliers to ensure adequate product supply. The trading conditions going into the second half of the financial year remain largely unchanged as impacted by the COVID-19 restrictions although the economy will benefit from lower inflation. In addition, the country should benefit from the anticipated good agricultural season, following good rains received in most parts of the country. We applaud the relative stability in the economy which has been created by the Reserve Bank of Zimbabwe’s weekly foreign currency auction. However, we are concerned that current trends are showing an ever-increasing gap between the official auction and market rates. The result of this growing level of arbitrage is that exporters are being denied more and more of the value of their efforts which will eventually translate into less foreign currency generation for the country with concomitant negative effects on the entire economy. We urge the authorities to reduce this arbitrage gap.
The manner in which Zimbabwe will manage and contain Covid-19 will have an impact on the short to medium term prospects of the economy and this will have an impact on the business community. It is important for Management to continue to optimally manage the Group’s gearing levels, invest free funds into assets with attractive returns, manage foreign currency exposure and preserve the Group entities’ balance sheets in real terms.
DIVIDEND
The Group is reinvesting most of its free funds into its bedding and lounge suite manufacturing businesses to significantly increase the manufacturing capacity as a way to meet available demand. As a result, the Board has declared an interim dividend of 24.5 ZWL cents per share, based on historical results, in respect of all ordinary shares of the Company.
The dividend is payable in respect of the interim period ended 31 December 2020 and will be paid in full to all shareholders of the Company registered at close of business on the 9th of April 2021. The payment of this dividend will take place on or around the 29th of April 2021. The shares of the Company will be traded cum-dividend on the Zimbabwe Stock Exchange up to the 6th of April 2021 and ex-dividend as from the 7th of April 2021.
The Board has also declared an interim dividend totaling ZWL$6.2 million to the Axia Employee Share Trust (Private) Limited which will be paid on or around 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 difficult 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
12 March 2021
