Final Results

MEIKLES LD - Final Results

PR Newswire

London, March 21

MEIKLES LIMITED

ABRIDGED AUDITED FINANCIAL RESULTS FOR THE YEAR ENDED 31 MARCH 2016

CHAIRMAN’S STATEMENT

I present the report for the financial year ended 31 March 2016.

The financial results are presented excluding sums considered due to the Company by the Government of Zimbabwe.

The basis for the calculation of sums due from Government have been agreed in more than one meeting that the Company Chairman and others, together, have attended with the Minister of Finance and Economic Development. The calculations of sums due have been subject to assessment by expert consultants. Sums considered due to the Company that are not included in the financial statements amount to US$42 million as at 30 September 2016 and continue to accrue interest.

When Government failed to fulfill the terms of the agreement, the Company sought relief from the courts with the objective of securing the agreed position. Government has since acknowledged their commitment to resolving this issue amicably.

In terms of The Zimbabwe Stock Exchange (“ZSE”) Listings Requirements, the Company is required to publish its audited financial statements for the year ended 31 March 2016 together with the unaudited financial statements for the half year ended 30 September 2016. Hence the timing of publication. For record purposes, the Company’s case against the ZSE has progressed very well with initial success being achieved against the ZSE on an earlier attempt by the ZSE to bar the Meikles’ claim. On the advice received, the only issue for determination by the Courts will be the quantum of damages as the liability of the ZSE is clearly established. Disputed matters occurred in 2015 but the relationship between the ZSE and the Company has since been satisfactorily restored.

Shareholders will be aware that the Company issued a cautionary statement on Wednesday, 9 March 2017. The Company will keep shareholders informed of developments, as appropriate.

It is pertinent to believe that the outcome of the transaction may result in a restructure and refinancing opportunity for the Group. Such an event will be of assistance to the Group, which has been relying on the repayment of funds from Government to recapitalize the Group and fund expansion opportunities.

Meikles Limited comprises six operating segments as follows:

Hospitality;

Stores (incorporating Department Stores and Wholesaling);

Supermarkets;

Agriculture;

Financial Services;

Security Services.

Turnover for the Group increased by 10% relative to the previous year. All segments contributed to the increase except for Hospitality. The increase in turnover suggests growth in market share, a key objective that is expected to continue in the forthcoming financial year.

Expenditure, driven primarily by a growth in occupancy costs resulting from expansion, increased by 1% relative to the previous year.

EBITDA increased by US$11.7 million. The contribution by each material segment to the Group’s EBITDA is set out in the notes to these abridged audited financial statements.

HOSPITALITY

The segment’s total revenue for the full year declined by 4% to US$15.8 million (2015: US$16.4 million) due to the introduction of value added tax of 15% on revenue from foreigners, which could not be fully passed onto guests through price increases. At Meikles Hotel, room occupancy grew by 1.64 percentage points, but the average daily rate declined by 7% eclipsing the increase in the occupancy growth. As a result, revenue per available room reduced by 3%.

Room occupancy at Victoria Falls Hotel was 52.71% (2015: 55.26%). The average daily rate declined by 2% resulting in revenue per available room decreasing by 6%.

The drop in the average daily rate at both hotels was largely as a result of the introduction of value added tax of 15% on revenues from foreigners.

Food and beverage gross profit margins were maintained at the previous year’s levels despite menu price reductions during the course of the year.

Operating costs for the year reduced by 3%. Savings were achieved in employee costs and certain cost items denominated in South African Rand that benefited from the weakening of the Rand against the US$ during the course of the year.

The decline in EBITDA was caused by the reduction in revenue.

STORES

The segment’s revenue for the financial year ended 31 March 2016 was US$22.2 million (2015: US$17.3 million), reflecting an increase of 28% over the last year due to the opening of new stores which operated for part of the year. Total operating costs reduced by 18% with savings being achieved in employee and occupancy costs. Cost containment strategies are being implemented to reduce costs further in such areas as utilities, occupancy, other operating and staff costs.

Despite the shrinking customers’ disposable income, the collection rate on trade debtors was unaffected and remained at 23% relative to the previous year. Bad debt write-off reduced to 2% (2015: 2.9%) and customers’ arrears reduced to 14% (2015: 16%).

As part of its strategy to increase revenue streams and market share, a total of ten stores were opened progressively during the year comprising two Barbours stores, four M-store outlets and four Meikles Mega Market branches. A number of Meikles Mega Market branches and M-store outlets are planned to be opened in the 2017 financial year.

SUPERMARKETS – TRADING AS TM AND PICK N PAY

The segment posted an excellent set of results for the financial year ended 31 March 2016. These positive results came in an environment characterised by a number of impediments, mainly sluggish economic conditions and deflation in food prices. Turnover for the year grew by 10% to US$395.3 million relative to the prior year. Customer count increased by 7.6% leading to a growth in units sold of 12.6%.

Despite the depressed macro-economic environment throughout the financial year, the average basket size increased by 3% in the current year. This is an indication that customers are spending more in our stores with competitive prices and unique promotions.

The gross margin for the year declined by 55 basis points from 19.72% to 19.17%. The investment in refrigeration and equipment helped improve the gross margin in new and upgraded branches. Enhanced focus on stock management helped to reduce shrinkage from prior year level by 46 basis points.

Stock management efficiencies improved the stock turn from 12.6 to 14.4 times in the current year.

Operating costs were 16.8% of turnover, an improvement from the prior year level of 17.1%. EBITDA for the year was US$15.9 million (2015: US$9.3 million). EBITDA growth was buoyed by increased sales, better shrinkage control and improved cost management.

The property development adjacent to TM Borrowdale has reached an advanced stage. The centre is expected to officially open during the first quarter of 2017.

AGRICULTURE

Tanganda’s revenue for the financial year ended 31 March 2016 of US$22.4 million was 6% higher than the revenue of US$21.12 million in the previous year, mainly due to greater volumes of bulk tea sales. During the year under review, bulk tea that had been stockpiled between December 2014 and March 2015 was sold following the granting of the Rainforest Alliance certification. The segment’s EBITDA increased on the back of growth in bulk tea export sales, an immediate positive impact of the Rainforest Alliance certification and various cost containment measures implemented during the period.

Operating expenses included a provision for a taxation penalty, which affected Tanganda and certain other companies in the industry. All companies involved are contesting the issue. The provision in Tanganda’s financial statements amounted to US$988,000.

Unfavourable weather conditions mainly drought, the most adverse for a number of years, impacted negatively on yields of avocadoes, coffee and tea. Bulk tea production to 31 March 2016 was 7,261 tonnes, 16% below the prior year of 8,609 tonnes. The cost of production for made tea was in line with expectation, with cost controls offsetting the impact of the decline in volumes. Average bulk tea export prices of US$1.37/kg was 3% firmer than the prior year’s US$1.33/kg.

Coffee production at 181 tonnes was 14% higher than the prior year yield of 159 tonnes but 33% below expectation of 272 tonnes due to moisture stress caused by the drought conditions. The average selling price for coffee at US$2.95/kg was 26% lower than the prior year of US$3.99/kg.

FINANCIAL SERVICES

Meikles Financial Services (MFS) had a successful year to 31 March 2016, having experienced uninterrupted growth. The segment has nearly completed its rollout of MyCash Kiosks across the country, from which a range of financial services are offered to a growing number of Zimbabweans. Agency banking continues to dominate in terms of revenue generation, though income from bill payments and other sources are on the increase.

The highlight of the year has been the recent launch of the MyCash Card, a low-cost bank account that can be opened with reduced Know Your Customer (KYC) requirements. MyCash Card is a ‘ZimSwitch Ready’ debit card offering Mobile Banking (USSD and Smartphone) to previously unbanked individuals allowing them to benefit from formal financial services that would otherwise be unavailable, at a minimal cost.

Given the current cash shortages in the economy, MyCash Card is proving to be attractive to all demographic groups as well as being a popular alternative to physical cash and a convenient method of paying employee wages.

MFS continues to see opportunities in the financial markets and is developing a growing range of revenue streams that include cross border remittances, insurance and payroll services.

SECURITY SERVICES

Meikles Guard Services’ objective for the financial year ended 31 March 2016 of expanding the number of contracts outside the group was achieved in part. Despite the existing economic environment Meikles Guard Services obtained contracts resulting in 21 posts outside the Group. Security tenders have been lodged for various embassies, financial institutions as well as a number of entities in the commercial sector. Marketing will intensify through the provision of security at fundraising functions for the Meikles Foundation.

MENTOR AFRICA LIMITED

The Group experienced an impairment loss of US$2.885 million on its investment in South Africa due to the devaluation of the South African Rand against the US Dollar. The Rand value of the investment increased. A dividend of ZAR 18.4 million was received from the investment (2015: ZAR17.3 million).

MEIKLES FOUNDATION

The Meikles Foundation has continued to grow from strength to strength. Major achievements for 2016 is the partnership with TM/Pick n Pay in their new annual golf day, where substantial funds were raised for Island Hospice and Healthcare, Zorarai Old Age Home in Mutare and Animal Welfare. Other initiatives include participating in Kidz Can in Zimbabwe with the commissioning of a half way hospice for children.

The Foundation continues to work jointly with international community, several corporates, charities and likeminded individuals. Projects include prisons, with food and blankets, dance therapy for mentally challenged and the Cups for Cancer awareness week. In this current economic environment, the Foundation has been frequently called upon to assist with humanitarian emergencies.

Restructuring of the Foundation has seen the employment of an Executive Director to assist in organizing and strengthening the Foundation.

MINING

The Group’s foreign mining partner has withdrawn from Zimbabwe. The Group is in a position to encourage other partners to participate in mining opportunities, but it is felt that the appropriate timing of any further involvement is not yet clear.

OUTLOOK

The Group’s EBITDA performance in the 2017 financial year is favourable relative to the year under review. It is now known that rains are more than normal. The Group continues to pursue opportunities for cost reduction, strong marketing and margin control. Where possible, short term loans will be converted to medium term loans. Market appetite for this conversion has improved.

DIVIDEND

The Board resolved not to declare a dividend for the year.

APPRECIATION

I would like to extend my appreciation to our customers for their continued support and to our shareholders and regulatory authorities for their support and guidance. I would also like to extend my thanks and appreciation to fellow Board members, management and staff for their dedication and commitment.

JRT MoxonExecutive Chairman15 March 2017

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 MARCH 2016

 CONSOLIDATED STATEMENT OF CASH FLOWS

NOTES TO THE ABRIDGED AUDITED FINANCIAL STATEMENTS

1. Basis of preparation

The abridged audited financial statements are prepared from statutory records that are maintained under the historical cost basis except for biological assets and certain financial instruments which are measured at fair value. Historical cost is generally based on the fair value of the consideration given in exchange for assets.

2. Statement of compliance

The Group’s abridged audited financial results have been extracted from financial statements prepared in accordance with International Financial Reporting Standards and the Companies Act (Chapter 24.03) and relevant statutory instruments (SI33/99 and SI62/96). These abridged financial results should be read in conjunction with the complete set of financial statements for the year ended 31 March 2016 which have been audited by Deloitte & Touche and an unmodified audit opinion issued thereon together with an Emphasis of Matter on going concern. The auditor’s report is available for inspection at the Company’s registered address.

3. Accounting policies

Accounting policies and methods of computation applied in the preparation of these abridged audited financial statements are consistent, in all material respects, with those used in the prior year with no significant impact arising from new and revised International Financial Reporting Standards (IFRSs) applicable for the year ended 31 March 2016.

4. Going concern

The Directors assess the ability of the Group to continue in operational existence in the foreseeable future at each reporting date. As at 31 March 2016, the Directors have assessed the Group’s ability to continue operating as a going concern and believe that the preparation of these audited financial statements on a going concern basis is still appropriate.

5. Balance with the Reserve Bank of Zimbabwe

Below is an analysis of the movement in RBZ balance during the year:

Notes:

6. Treasury Bills

Below is an analysis of the movement in the Treasury Bills’ balance during the year:

Notes:

The Treasury Bills have been designated as “available-for-sale” (AFS) financial assets and were initially recognised/measured at fair (market) value. The fair (market) value of the Treasury Bills on initial recognition, and at 31 March 2016, was calculated based on a yield to maturity of 17%. This yield to maturity was determined with reference to the percentage discount to the nominal value of the Treasury Bills at which the Company has been able to sell certain of the Treasury Bills in the open market during the preceding and current financial years.

Interest income on the Treasury Bills is recognised using the effective interest rate method and is included in “Investment income” in the Statement of Profit or Loss and Other Comprehensive Income.

At 31 March 2016, Treasury Bills with a nominal value of US$12.2 million (2015: US$14.7 million) were pledged as security for loans with a carrying value of US$14.8 million (2015: US$16.2 million).

Treasury Bills issued by the Reserve Bank of Zimbabwe held at 31 March 2016:

The salient terms of the Treasury Bills held at 31 March 2016 are as follows:

7. Segment information

*Intercompany transactions and balances have been eliminated from the corporate amounts. Corporate also includes other subsidiaries that are immaterial to warrant separate disclosure.

Website : www.meiklesinvestor.com