Simbisa Brands Limited (SIM.zw) HY2022 Interim Report
Throughout the six months under review, the Group continued to trade under challenging conditions due to the socio-economic and regulatory effects of the Covid-19 pandemic across all the markets. Despite this, Simbisa delivered an excellent performance. The key highlights for the period include:
- Simbisa recorded a strong rebound in customer counts despite limitations in trading hours and other restrictions;
- The Group opened 47 stores during the six-month period, including 5 drive-thru restaurants;
- A 53% increase in delivery sales against the same period last year contributed significantly to Simbisa’ s financial performance;
- Simbisa continued to invest in technology and digital initiatives encompassing digital menu boards, digital ordering and manufacturing process automation. These investments complement the business’ efforts to improve the customer experience.
The Board continues to strategically navigate the short-term challenges brought about by the Covid-19 pandemic with its stated ambition of driving growth into the future.
In the period under review the following matters received critical attention:
- Covid-19 induced trading restrictions
Although successful vaccination efforts have raised optimism across the globe, recurrent waves and new variants of SARS-coV-2 virus will continue to impact business operations.Therefore, keeping our staff and customers safe remained the number one priority.In our leading markets, (Zimbabwe and Kenya), Simbisa restaurants traded -44% and -13% respectively, below the regular trading hours. Limits on sit-down services, international travel restrictions and limitations on gatherings and the resultant decrease in customer movement also impacted trading results. Conversely, however, the pandemic has also brought about new opportunities, accelerating customer adoption, of omnichannels such as drive-thru service, curb-side collection, and online delivery ordering. Simbisa continues to improve its service offerings and delivery models across these channels.
- Strategic focus areas
Strategically, the Board focused on three key areas: new store roll-out, store remodelling initiatives, and customer experience enhancement. The Board approved a significant pipeline of new stores, stretching into the next financial year. The Board also approved store-remodelling initiatives including smaller footprint stores in markets such as Mauritius, which have been highly successful. To enhance customer experience, quality of service and brand consistency, the Board has increased the focus and resources allocated to training, talent retention and compliance with brand standards. The Board is also closely overseeing the implementation of various initiatives covering food processing, customer engagement and financial systems and controls to enhance customer service optimisation and improve operational efficiencies and real time financial reporting.
FINANCIAL REPORTING MATTERS
i. Foreign Exchange rate disparities in Zimbabwe and impact on financial reporting
In the Company’s Financial Year Ended June 2021 Report, set out the Board’s considered view that the exchange rate derived from the Reserve Bank of Zimbabwe weekly Foreign Currency Auction System (“Auction Rate”) is not appropriate as a “Spot Rate” compliant with the requirements of International Accounting Standard (IAS) 21, “The Effects of Changes in Foreign Exchange Rates” and therefore International Financial Reporting Standards (IFRS). Since that report, there have not been any significant changes in the Zimbabwean market, and the Board maintains the view previously expressed to shareholders. The Group’s Zimbabwean Operation continues to generate all its foreign currency from the sale of products in the local market in line with the multi-currency framework and does not have access to the foreign currency auction system. Furthermore, the disparity between the Auction rate and the rate reflected by comparing market prices in local currency against foreign currencies has sadly continued to widen.
The Group, therefore, estimated an exchange rate based on the transaction rates and applied this rate to translate monetary foreign currency balances on the statement of financial position. The Group used the same estimated exchange rates to translate the results of its foreign subsidiaries.
The Independent Auditors believe the Auction Rate to be a “Spot Rate” compliant with the requirements of IAS 21. As a result, they have issued an adverse review conclusion, on the same basis as indicated in the audit opinion on the Group’s financial statements for the year ended 30 June 2021. Varying views on the matter remain across the professional accounting sector in Zimbabwe. Simbisa will continue to lobby, through the relevant bodies, including the Public Accountants and Auditors Board, for guidance to be established that better reflects the peculiar economic environment prevailing in Zimbabwe.
ii) Impact of international Financial Reporting Standard (IFRS) 16: Leases
As highlighted in our Group Annual report for the year ended 30 June 2021, the application of IFRS 16 has had a material impact on the Group’s results as it operates most of its stores under operating lease agreements. IFRS 16 applies a single lease accounting model, like that of finance leases under the previous lease standard, IAS 17. Operating lease arrangements are therefore treated as financing arrangements under the new standard. The accounting impact of the standard is a significant dilutive effect on the Group’s earnings in the early years of the lease and the opposite in the last years.
The Directors believe that considering the nature of the Group’s lease arrangements, it is neither appropriate nor useful to treat the Group’s operating leases as financing arrangements, particularly from an income statement perspective. The Board continues to assess the relevance of this standard and usefulness to shareholders and users of the Group’s financial statements.
FINANCIAL PERFORMANCE HIGHLIGHTS
Key highlights (in inflation-adjusted terms) are as follows:
- Revenue increased by 54% (+26% in Zimbabwe and +129% in the Region). The main driver of growth in Zimbabwe was an increase in customer counts of 18%. In the Region, (e