Meikles Limited 2019 Abridged Report

We have extracted below the Chairman’s Statement from the 2018 annual report of Meikles Limited (MEIK.zw), listed on the Zimbabwe Stock Exchange:

It gives me pleasure to present the Chairman’s Report for the financial year ended 31 March 2019.

FINANCIAL OVERVIEW

There were significant developments in the operating environment during the year under review. The main highlights impacting the financial statements are as follows:

  • Year on year inflation was 66.8% at the end of March 2019.
  • In October 2018, Reserve Bank of Zimbabwe (“RBZ”), through a Monetary Policy announcement separated bank accounts into RTGS FCA and Nostro FCA and maintained the exchange rate between them at 1:1.
  • Government promulgated Statutory Instruments (“SI”) 32 & 33 of 2019 that introduced RTGS Dollar (“RTGS$”) as legal tender in Zimbabwe. SI 33 of 2019 prescribes the manner in which certain balances in the financial statements should be treated as a consequence of the recognition of the RTGS$ as a currency in Zimbabwe.
  • RBZ issued Exchange Control Directive RU 28 of 2019 on 22 February 2019 introducing an interbank market for trading RTGS$ against other foreign currencies. The opening exchange rate was set at 2.5 RTGS$ to one United States Dollar (“US$”).

The functional currency of the Group changed in the current year to RTGS$ from US$ in the previous years as a consequence of the above. The Group also changed its presentation currency to RTGS$ Financial statements for the year ended 31 March 2019 are presented in RTGS$ Comparative financial information was translated to RTGS$ using an exchange rate of 1:1. The Group opted to comply with the requirements of SI 33 of 2019 and the treatment of foreign currency denominated transactions does not fully comply with International Accounting Standard (“IAS”) 21 — “The Effects of Changes in Foreign Exchange Rates”.

GROUP FINANCIAL PERFORMANCE

Despite the changes in the economic environment during the year under review, the Group performed well.

Revenue grew from RTGS$524.9 million in 2018 to RTGS$7916 million in the year under review.

Group earnings before interest, taxation, depreciation and amortisation (“EBITDA”) for continuing operations increased to RTGS$1015 million from RTGS$406 million in the financial year to 31 March 2018.

Profit for the year grew to RTGS$659 million (2018: RTGS$8.2 million).

Total comprehensive income for the year increased to RTGS$118.3 million, (2018: RTGS$8.2 million), of which RTGS$1062 million was attributable to owners of the parent and the remaining balance of RTGS$121 million for minority shareholders.

Segmental contributions to the Group’s financial performance is set out in note 7 of these abridged audited financial statements.

REVIEW OF OPERATIONS

Supermarkets- trading as TM Pick n Pay

Revenue increased by 53.2% over the previous year. EBITDA increased to RTGS$690 million from RTGS$345 million in the previous comparative year. Profit for the year is after a provision for exchange losses on foreign currency denominated liabilities accumulated prior to the introduction of the RTGS$ commonly referred as “legacy debt” of RTGS$239 million.

Increase in revenue and profit was achieved through growth in units sold and inflation induced price increases, however the segment was continuously competitive in its pricing policies.

A new branch was opened in Victoria Falls in March 2019 and upgrades of more branches have commenced.

Agriculture

EBITDA rose to RTGS$31.7 million from RTGS$103 million in the previous year. From November 2018, international bulk tea export prices that had remained firm at an average US$1.68/kg up to October 2018 started to decline by between 10% and 15% due to oversupply by Kenya. The segment’s annual made tea production of 10,171 tonnes was commendable. Made tea production during the year ended 31 March 2018 was 10,601 tonnes.

Export earnings from the new crops being macadamia nuts, avocadoes and coffee grew by 96% from US$23 million in the prior year to US$45 million in the year ended 31 March 2019. As a percentage of total exports, the new crops contributed 25% up from 13% in the prior year. The contribution of the new crops to the segment’s export earnings is expected to increase to 60% within three years as these crops reach maturity. In September 2018, Tanganda Tea Company Limited received the Confederation of Zimbabwe Industries (CZI) Exporter of The Year Award.

Pick n Pay South Africa opened shelf space to Tanganda’s packed tea brands during the last quarter of fiscal year 2018. The endorsement by Pick n Pay South Africa will assist our efforts to penetrate the South African tea market. With anticipated growth in packed tea sales to the regional market, the segment invested in a new world—class IIVIA tagless tea—bagging machine. The machine arrived from Italy in March 2019 and was successfully installed.Export earnings from tea are poised to grow through higher prices from increased exports to the regional market.

Effects of both the hailstorm of January 2019 and Cyclone Idai of March 2019 have been mitigated by special silViculture on affected macadamia plantations, our investment in microjet irrigation systems and US$ denominated insurance cover. Tea was not affected by the phenomenon. The monetary value of damage caused by Cyclone Idai to standalone structures such as toilets, irrigation equipment covering 30 hectares of macadamia plantations and 5 hectares of macadamia trees was quantified at RTGS$222,343.

The segment contributed labour and machinery to repair some of the damaged infrastructure in Chipinge. In addition, Tanganda also assisted affected communities in both Manicaland and Manica provinces of Zimbabwe and Mozambique respectively with food and water supplies.

Hospitality

EBITDA for continuing operations increased to RTGS$85 million in the current year from RTGS$36 million in the previous year.

Meikles Hotel now requires substantial modernisation of guest facilities as well as electro mechanical and plumbing infrastructure to restore it to a 5—star property by international standards. Initial forecasts suggests up to US$30 million needs to be spent on the hotel. The Group does not consider that it is in a position to commit the necessary funds to the hotel and it is best for the future of the hotel to place its development in the hands of skilled international operators. Processes to dispose of the hotel are in progress, hence the financial statements reflect the hotel as an asset held for sale. The Company will be seeking the approval of its shareholders for the proposed disposal at an Extraordinary General Meeting to be convened at a future date.

A refurbishment programme for The Victoria Falls Hotel will commence during the last quarter of fiscal year 2019 after our peak season. Funding for these works has already been secured.

Department stores and properties

The EBITDA loss in the department stores segment reduced to RTGS$27 million from RTGS$4.2 million in the previous year.

The influx of cheap imports by several sections of society created a tough trading environment for the department stores segment. The Group will not commit additional resources to resuscitate this segment in its current form but will focus on developing the commercial real estate properties that the retail stores used to occupy.

Security Services Meikles

Guard Services continues to provide security services to both Group companies and to certain third parties. It is anticipated that further third party contracts will be secured.

MEIKLES FOUNDATION

During the year under review, Meikles Foundation continued to work closely with Group entities in raising funds to help disadvantaged members of society. TM Pick n Pay remained the key partner in fundraising efforts through its sponsorship from funds raised at the Charity Golf Day. Rainbow Children’s Home received a substantial donation from the proceeds of the Charity Golf Day. The objective of the Home is to allow disadvantaged children with no relatives or friends in Harare, a welcoming, clean home with healthy sustaining food, to recover from their chemotherapy treatment before their journey home.

Meikles Foundation partnered with three other institutions in a pilot project utilising the existing soccer teams within the prison system in Harare to assist Zimbabwe Prisons with their programme of rehabilitation. The project was granted permission to film the events and the various participating prisons to create a Video clip which will be aired locally and internationally shining a light on the Zimbabwe Prison system.

DIVIDEND

In View of the Group’s financial results for the year ended 31 March 2019, the board declared a final dividend of 7.67 RTGS cents per share, bringing the total dividend for the year to 8.87 RTGS cents. The final dividend will amount to RTGS$2002 million. A full dividend announcement will be published separately in due course.

STRATEGY AND OUTLOOK

The Group has commenced trading in the new financial year on a more favourable basis relative to the comparable period of the previous financial year, in terms of revenue and profit. Post year end, the exchange rate between RTGS$ and US$ moved significantly impacting favourably on the Group’s exporting segments. Consequently, the Group now has an ability to elirniniate all short term borrowings and creditors in arrears from operating cash flows. In this regard shareholders should also consider sums to be realised from the sale of Meikles Hotel, and the additional planned funding initiaves set out below

The Group will interact more closely with its majority shareholder. It is believed that such interaction will accelerate progress towards unlocking shareholder value. The Group will benefit from the provision of both local and international investment funds for the use of Group expansion and financial security.

The forward commercial environment will be challenging. The board recognises that additional skills at board level in the Holding Company and at board level in Group companies will be required to ensure the Group responds to challenges and meets the stringent requirements that will emanate from the investment funding that will be sourced from the efforts of the majority shareholder.

Shareholders are advised that this essential part of the Group restructuring process is to be progressed with urgency. It follows that this process will be accompanied by an assessment, followed by required implementation of future requirements for operational skills in the Group.

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

15 July 2019