DIRECTORS’ RESPONSIBILITY
The Directors of Axia Corporation Limited are responsible for the preparation and fair presentation of the Group’s consolidated financial statements, of which this press release represents an extract. The audited financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and in the manner required by the Companies and Other Business Entities Act (Chapter 24:31) and the Zimbabwe Stock Exchange listing requirements, except for adherence to International Accounting Standard (IAS 21) “The Effects of Changes in Foreign Exchange Rates”. The principal accounting policies of the Group are consistent with those applied in the previous annual financial statements except for the adoption of IFRS 16 “Leases” with an effective date of 1 January 2019.
AUDITOR’S STATEMENT
The abridged audited financial results should be read in conjunction with the complete set of financial statements for the Group for the year ended 30 June 2020, audited by Deloitte & Touche, Chartered Accountants (Zimbabwe), in accordance with International Standards on Auditing. An adverse opinion has been issued thereon for non-compliance with International Accounting Standard 21 “The Effects of Changes in Foreign Exchange Rates”. There were no specific matters that were determined to be key audit matters. The auditor’s report on the financial statements, which forms the basis of these abridged financial results, is available for inspection at the Company’s registered office. The Engagement Partner responsible for the audit is Stelios Michael.
COMPLIANCE WITH INTERNATIONAL ACCOUNTING STANDARD 29: FINANCIAL REPORTING IN HYPERINFLATIONARY ECONOMIES
The Public Accountants and Auditors Board (PAAB) through its circular 01/19 issued in October 2019 communicated that the factors and characteristics to apply the International Accounting Standard (IAS) 29 “Financial Reporting in Hyperinflationary Economies” had been met. The Group applied the requirements of IAS 29 with effect from 1 July 2019.
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 from 1 October 2018 (date of consensus for IFRS reporting when the change in functional currency occurred) to the end of the reporting period. 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 from 1 October 2018 to the end of the reporting period. Financial statements prepared under the historical cost convention have also been presented as supplementary information.
OPERATING ENVIRONMENT AND OVERVIEW
In the year to 30 June 2020, the operating environment was volatile and presented a number of challenges characterized by the weakening Zimbabwe dollar, re-emergence of hyperinflation, shortage of foreign currency and liquidity constraints which led to reduced consumer disposable income and demand. Foreign currency shortages have made it difficult to settle foreign obligations as well as sell imported products. These challenges necessitated management to proactively refine business models as a way to manage ever-changing operating costs, working capital levels as well as protect the business units’ balance sheets in real terms. Resultantly, the Group’s business units were resilient despite these adverse factors and this helped the Group to record a fair performance.
The advent of the novel Coronavirus (COVID-19) pandemic in the second half of the financial year, has changed the economic, social, and health outlook of the world. As with many other countries, Zimbabwe implemented various levels of the lockdown since 30 March 2020. These lockdown measures reduced economic activity as there were disruptions to normal business operations. The Group’s retail businesses TV Sales & Home and Transerv were significantly affected as they were closed for almost the whole of April 2020. The distribution business in Zimbabwe was operating at reduced levels with minimal staff as it is part of essential services providing FMCG products to mainstream retailers and wholesalers. 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 will remain focused on ensuring the safety and health of its employees and other stakeholders and thus will continue to follow the guidelines from authorities for measures that will ensure their safety. The Group has implemented several measures to protect its staff as well as improve health and safety measures at workplaces and to mitigate the spread of this deadly virus. Axia Corporation Limited, together with its strategic partners launched an offensive joint initiative to ensure that it is in a position to assist its staff during this time by offering the necessary medical hardware, personal protective equipment, and sufficient qualified health professionals. This initiative is being administered by the Group’s payroll and wellness service provider, Providence Human Capital. The Group will continue to focus on ensuring the safety and health of its employees and other stakeholders and will remain resilient and determined to withstand the effects of this dreadful pandemic.
The monetary authorities have allowed the use of foreign currency for domestic transactions since 26 March 2020. The Group welcomed this policy intervention as it facilitated trading and mitigated some of the tight liquidity. The retail operations witnessed growth in volumes since the use of foreign currency on domestic transactions.
FINANCIAL OVERVIEW (COMMENTARY BASED ON INFLATION ADJUSTED RESULTS)
The Group increased its shareholding in Transerv from an effective 26.01% to 50.51%, with effect from 1 January 2020. The acquisition was done through the Group’s wholly-owned subsidiary domiciled in Mauritius, Excalibur Mauritius Limited, for a purchase consideration of US$900,000. Goodwill amounting to ZWL$15.630 million was recognized at the date of the transaction. This acquisition will enable Transerv to pursue strategies that maximise shareholder value with further alignment and support from the Axia group, which will enhance the long-term returns. As a result, the Group has consolidated the results of Transerv with effect from 1 January 2020.
The Group reported revenue of ZWL$7.848 billion during the year to achieve a marginal decline compared to the prior period. The impact of inflationary price increases negatively affected demand thus turnover volumes were below those traded in the prior year resulting in a decline in revenue. An improved performance was noted in the last quarter of the financial year, where volume growth was better than that achieved in the prior year. The Group sustained growth in profitability by recording an operating profit of ZWL$874.116 million, representing a 43% growth in the comparative period, despite the inflationary pressures on costs. The financial income line is mainly comprised of income earned on the derivative option, unrealised exchange gains on foreign denominated cash and cash equivalents as well as profit on disposal of assets. Equity accounted earnings are mainly comprised of the results of Transerv for the first 6 months and Restapedic Bedding. Basic Earnings Per Share and Headline Earnings Per Share both improved by 494% and 481% respectively.
Net borrowings have decreased by ZWL$481 million mainly as a result of increased positive cash and cash equivalents balances. In the face of hyperinflation, a negative net-gearing position is an unhealthy position for the Group and management will be addressing this in the new financial year.
The Group generated cash of ZWL$1.109 billion from operations which was up 278% from the comparative period. The Group’s capital expenditure for the year totaled ZWL$124.769 million and this was limited to critical maintenance and expansion projects as these were also affected by inflationary pressures.
SUSTAINABILITY REPORTING
The Group continues to apply the Global Reporting Initiatives (GRI’s) Sustainability Reporting Guidelines as part of its commitment to ensuring the sustainability of its businesses. The Group will continue to uphold these practices and values across its operations to ensure that long-term business success is achieved in a sustainable manner.
OPERATIONS
The main operating business units in the Axia Corporation Limited Group are TV Sales & Home (TVSH), Distribution Group Africa (DGA) and Transerv. TVSH is Zimbabwe’s leading furniture and electronic appliance retailer with sites located countrywide. DGA’s core areas of expertise lie in inbound clearing and bonded warehousing, ambient and chilled warehousing, logistics, marketing, sales, and merchandising services. Transerv retails automotive spares and accessories by utilising multiple channels to service the needs of its customers.
TV Sales & Home
TV Sales & Home had a slow start to the year with subdued volumes in the first quarter which were later offset by improved trading in the second and third quarters. Turnover was 11% below the prior year, with volumes 23% below prior period. Quarter four performance was commendable despite not trading in the month of April and the business witnessed improved margins. The improved margins together with controlled overheads led to higher profitability for the year. Credit sales were a strong driver of volumes in the first half of the financial year but were later suspended after the COVID-19 outbreak. Whilst this affected volumes, recoveries were made when the company started to trade in US$ for the last two months of the financial year, banking healthy margins and also having access to the much-needed foreign currency reserves.
Inventory holding remains good as access to foreign currency has improved significantly, and the local supply chain remains funded from the foreign currency auction system. Legend Lounge production has improved and was only limited by reduced working hours under lockdown. This entity is now well placed for the financial year ahead, with a complete range of lounge suites to compete locally as we gear up to increase capacity for future exports. Volumes at Restapedic were 26% below the prior year, however the business remained profitable despite trading in a challenging environment.
Three new stores were opened during this year, of which two stores – one each in Victoria Falls and in Rusape – were opened in the first half of the year whilst a third store was opened in Harare at Megawatt House. The Megawatt House store is the biggest amongst the three, it is performing very well and already making major contributions to the business. Growth remains the key focus and the business will continue to grow its store network, with a mega store scheduled to open, in the first quarter of the new financial year, in Mutare providing a new shopping experience.
Distribution Group Africa – Zimbabwe
Distribution Group Africa operations delivered a fair set of results in Zimbabwe. Turnover was down 16%, with operating profit also down from the comparative period. Volumes were 31% below the prior year and this led to a decline in turnover as the consumer spending power was negatively affected by the economic challenges. Operating costs were under control and this resulted in the business being able to maintain its profitability levels against prior year. Competition in this market remains strong with numerous independent traders. The business’ strong brands and dominance in the market enabled it to weather the economic headwinds that were also worsened by the advent of the COVID-19 pandemic. The focus in the new financial year is to preserve the balance sheet in real terms and looking at measures to increase volumes.
Distribution Group Africa – Region
The regional operations reported a fairly decent set of results during the year under review with consolidated turnover going up by 11% over the prior year in US$ terms. The growth in turnover was contributed by the acquisition of new distributorship agencies like Nestle and Blue Band in Zambia and the addition of Pro Group and Blue Band distributorship agencies in Malawi. Improved margins and a decline in operating costs lead to a 63% growth in operating profit over the comparative period. The operating environments in both Malawi and Zambia continue to be considerably challenging but our businesses have shown resilience. The depreciation of the local currency in Zambia to the US$ has negatively affected the net assets of the business and management will continue to focus on how to improve shareholder value in US$ terms. As previously explained in the interim report, the regional business model is being aligned to the Group model on operating standards.
Transerv
Transerv remained profitable despite a challenging year. The business had to endure a month of national lockdown with no business activity thus significantly affecting the year’s revenue and volumes. Overall, the business suffered a volume decline of 38% compared to prior year. The strategy to focus on fast-moving stock lines and managing operating costs despite inflationary pressures helped the business to remain profitable. The business witnessed an operating profit growth of 274% against prior year. Despite the adversities, the business maintained its 24 trading outlets, 15 Fitment Centers, a diesel pump room (ADCO), Clutch and Brake Specialists (CBS) and an Autocycle Center. Renovations were completed on 5 retail outlets and 5 fitment centers, giving a much-improved customer experience. In the coming year, management will continue to explore ways to improve volumes as well as expanding the store footprint.
PROSPECTS
At the tail end of the financial year, the authorities introduced a new foreign currency auction system. The businesses benefited from the improved access to foreign currency through the new auction system as well as domestic sales in foreign currency. The supply of key raw materials is stable although there could be logistical challenges arising from the COVID-19 restrictions
Given the effects of Covid-19 worldwide, the Group has to embrace new technologies and 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 new financial year remain largely unchanged as impacted by the COVID-19 restrictions and unstable macro-economic factors. 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. This, however, will present opportunities and the Group will continue to evaluate investment opportunities to preserve and sustain value for all stakeholders.
The Group’s key focus areas will be on managing gearing levels, operating costs given the inflationary pressures, foreign currency exposure and preserving the balance sheet in real terms. The Group will have to swiftly adapt to environmental changes and leverage on its strength as leading speciality retailers with wide branch networks across the country as well as a dominant distributor.
DIVIDEND
Based on the historical results, the Board has declared a final dividend of 19.16 ZWL cents per share in respect of all ordinary shares of the Company. This brings the total dividend paid for the year to 23.76 ZWL cents. The final dividend is payable in respect of the financial year ended 30 June 2020 and will be paid in full to all shareholders of the Company registered at close of business on the 16th of October 2020. The payment of this dividend will take place on or around the 29th of October 2020. The shares of the Company will be traded cum-dividend on the Zimbabwe Stock Exchange up to the 13th of October 2020 and ex-dividend as from the 14th of October 2020.
The Board has also declared a final dividend totaling ZWL$5.2 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 difficult year 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
