MIK Meikles Limited

MEIKLES LIMITED

ABRIDGED UNAUDITED FINANCIAL RESULTS FOR THE YEAR ENDED 31 MARCH 2016

CHAIRMAN’S STATEMENT

Your Board is required to release unaudited results for the year ended 31 March 2016. These results are exclusive of sums due from Government.  The Board has not yet received adequate confirmation from Government to justify the inclusion of these sums due in the unaudited financial statements.

In the light of the shareholder update of 8 March 2016, the Company has received continuous assurances that the debt is agreed by Government and written confirmation will be forthcoming. The Board is pursuing, as a matter of urgency, the finalization of this issue, upon which audited results will be released.

The sums due from Government will have a very material positive impact on the Company’s results. As stated in the previous Annual Report, these sums will only be accounted for when they are received, or when receipt is confidently assured.

The Zimbabwe Stock Exchange requires unaudited financial statements to be released at this point in time so that shareholders may be aware of the financial status and performance of the Group.

I have pleasure in presenting the report for the financial year ended 31 March 2016.

Meikles Limited comprises six operating segments as follows:

Hospitality;
Stores (incorporating Departmental 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 unaudited 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 revenue 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 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 stores and four Meikles Mega Market branches.

A number of Meikles Mega Market branches and M stores are planned to be opened in the 2017 financial year with the segment being expected to return to profitability by the end of the second quarter of 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 characterized 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. Construction work is expected to be completed by the end of 2016. The center 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$21.1 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 financials amounted to US$988,000.

Unfavourable weather conditions (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 price 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 demographics 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).

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 has so far been favourable relative to the year under review.  It is expected that rains in the forthcoming season will be far more normal.  The Group cannot predict the likely course of economic trends for the balance of the financial year.  However, the Group will continue to observe closely the course of economic trends. The Group will also continue pursuing the recovery of the sums due by Government, cost reduction efforts, 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 Moxon

Executive Chairman

2 August 2016

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

NOTES TO THE ABRIDGED UNAUDITED FINANCIAL STATEMENTS

1. Basis of preparation

The abridged unaudited 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 unaudited 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).

3. Accounting policies

Accounting policies and methods of computation applied in the preparation of these abridged unaudited 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 unaudited 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:

1. An amount of US$5 million was due and payable in cash on 31 March 2015. This amount was settled by the RBZ issuing new Treasury Bills with a nominal value of US$6.5 million, and a fair market value of US$5.8 million, on 31 August 2015. The basis of calculating the fair market value of the Treasury Bills is set out in note 6.
2. This amount was settled on 7 April 2015 by the RBZ replacing Treasury Bills with a nominal value of US$31.1 million on hand at 31 March 2015 with new Treasury Bills with a nominal value of US$33.3 million. The US$2.2 million increase in the nominal value of the Treasury Bills relates to interest from previous years.

6. Treasury Bills

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

Notes:

1. On 7 April 2015 the RBZ replaced Treasury Bills with a nominal value of US$31.1 million on hand at 31 March 2015 with new Treasury Bills with a nominal value of US$33.3 million. The US$2.2 million increase in the nominal value of the Treasury Bills related to interest from previous years.  The change in the market value of the Treasury Bills arose as a result of the higher coupon rates and shorter maturity dates of the new Treasury Bills received.

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.

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