Simbisa Brands Limited

Simbisa Brands – Trading Update for the third quarter ended 31 March 2024

By Published On: May 16th, 2024Categories: Corporate announcement, Earnings, Trading update

Simbisa Brands Limited (‘Simbisa’, the ‘Group’ or ‘Company’) issues the following trading update for the Third Quarter ended 31 March 2024.


TRADING ENVIRONMENT

The Group managed to achieve top-line growth in the quarter under review, which continues to be driven by new store openings and firmer real Average Spend in Zimbabwe. Operating challenges, most notably exchange rate volatility, inflationary pressures and structural tax changes, negatively impacted consumer spending power which translated to depressed same-store customer volumes. The Zimbabwean Operations were also impacted by power outages stemming from low national power generation capacity, trade disruptions caused by significant roadworks in the Harare City Centre and adverse weather conditions causing a potato shortage during the quarter under review. Kenya was also affected by heavy rains causing damage to infrastructure and trade disruptions. On the upside, the recent recovery of the Kenyan Shilling has benefited the Kenyan operations through its positive effect on consumer spending behaviour and operating costs.

The Group has started to realise the operational leverage that the reorganisation exercise unlocked, with a reduction in the overhead costs which were associated with running the Group’s smaller, lower-contribution markets. Despite inflationary cost pressures, the Group managed to improve operating margins during the period under review, through significant cost-saving initiatives employed during the financial year.

GROUP PERFORMANCE UPDATE FOR THE QUARTER

Group revenue increased by 3% year-on-year, from US$64.3mn in Q3 FY 2023 to US$66.4mn in Q3 FY 2024, mainly driven by an increase in real Average Spend. The Zimbabwean Operations achieved a 4% increase in Revenue, driven by higher Average Spend, whilst the Regional Operations grew Revenue by 1%, driven by an increase in customer counts in Kenya whilst Regional real Average Spend fell 2% due to exchange rate weaknesses.

In the 9-month YTD period to 31 March 2023, Group customer counts increased 1% year-on-year to 44.3mn whilst real Average Spend grew 5%, resulting in a 6% increase in Group Revenue versus prior year. Growth was primarily driven by new store openings and higher real Average Spend in the Zimbabwean operations.

A net of 25 new Company-operated counters were opened in the quarter under review and a net of 62 new counters were opened in the 9-month YTD period, bringing the total store count for the Group as at 31 March 2024 to 702, of which 591 are Company-operated and 111 are in franchised markets.

ZIMBABWE

The operating environment in Zimbabwe in Q3 FY 2024 remained challenging, characterised by increasing inflation and ZWL exchange rate devaluation, ahead of the launch of the ZiG in April 2024. The new tax measures which took effect from 1 January 2024 have put pressure on operating margins consumer disposable incomes, although the effect on the latter has been somewhat alleviated by the high level of informalisation of the economy. Further cost pressures emanated from the electricity tariff increases effected in January 2024, continued power outages and a nationwide potato shortage which resulted in a doubling in the price of potatoes during the review period.

Despite the operating challenges, Simbisa continues to grow its footprint in Zimbabwe opening 25 new outlets in the quarter under review, including the much-anticipated opening of Cork Corner in January and the first Bulawayo Spur restaurant opened in February 2024. Zimbabwe opened 48 counters between 31 March 2023 and 31 March 2024 to close the quarter under review with 325 counters.

Real Average Spend increased by 3% in Q3 FY 2024 versus prior year, with our Zimbabwe operations effectively adjusting menu prices in line with inflation thereby preserving gross profit margins which, boosted by improved procurement strategies, increased from prior year levels. Turnover increased 4% from US$46.5mn in Q3 FY 2023 to US$48.3mn in Q3 FY 2024. In the 9-month YTD period to 31 March 2024, revenue increased 8% year-on-year driven by an increase in average spend, whilst customer counts remained flat.

The delivery segment remains a key focus area and delivery volumes increased by 10% to 73,856 in Q3 FY 2024 from 66,976 in prior year. Delivery times were successfully reduced to 55 minutes in Q3 FY 2024 from 66 minutes in the prior quarter, Q2 FY 2024, due to a remapping and optimisation of delivery zones, with the target to reduce delivery times to under 40 minutes by Q2 FY 2025.

KENYA

The Kenyan government’s issuance in February 2024 of a new US$1.5bn Eurobond to refinance the US$2bn Eurobond due in June 2024, reduced pressure on Kenya’s foreign exchange reserves and propelled a rally in the Kenyan Shilling exchange rate. The Kenyan Shilling appreciated 0.2% against the US Dollar between 31 March 2023 and 31 March 2024, during which 10 months was a devaluation of 21% against the Dollar with the Shilling recovering 18% in the last 2 months, between 31 January 2024 and 31 March 2024. Annual inflation followed suit, with the inflation rate cooling from 7.5% in January 2024 to a 2-year low of 5.7% in March 2024. We expect the exchange rate rally to filter through to the results from Q4 FY 2024.

Customer counts increased 4% year-on-year from 3.1mn in Q3 FY 2023 to 3.2mn in Q3 FY 2024, buoyed by new store openings with 14 net new counters opened between 31 March 2023 and 31 March 2024. Local Currency Average Spend increased 8% year-on-year, resulting in Turnover increasing 12% in Q3 FY 2024 versus prior year. However, exchange rate weaknesses in the first half of the review period diluted the impact in real-terms and Average Spend dropped 9% year-on-year in US Dollar terms, resulting in a 5% decline in US Dollar Turnover over the same period.

YTD Revenue increased 15% versus prior year, driven by a 4% increase in customer counts and a 10% increase in Local Currency spend. In US Dollar terms, Revenue fell 5% year-on-year due to the devaluation of the Kenyan Shilling against the US Dollar during the first half of the financial year.

Simbisa Kenya continues to successfully grow the delivery business, using App-exclusive offers and marketing support to drive deliveries through our in-house mobile application platforms. In a drive to dominate the pizza market, Kutuma Kenya has in the quarter under review re-engaged third party aggregators through a remodelled structure whereby the aggregators take Pizza Inn customer orders via their platforms, with Kutuma Kenya completing the deliveries to the customer. This structure has proved successful in driving sales volumes whilst retaining our ability to control pricing, product quality and customer service. Delivery volumes increased 39% in Q3 FY 2024 versus the prior year comparable period.

ESWATINI

Exchange rate volatility of the South African Rand, to which the Eswatini Emalangeni is pegged, dominated the operating landscape during the period under review, impacting customer spending behaviour and raw material prices. The latter was exacerbated by the borders remaining closed to imports of beef and poultry products, due to the Foot and Mouth and Avian Influenza outbreaks in South Africa.

Simbisa’s Eswatini operations achieved a 5% increase in Local Currency revenue in Q3 FY 2024 versus prior year, driven by a 10% increase in Average Spend. In US Dollar terms, Average Spend increased a more moderate 4% year-on-year, resulting in a 1% decrease in US Dollar revenue.

YTD customer counts increased 4% versus prior year, whilst Local Currency Average Spend grew 8% resulting in a 13% increase in revenue. US Dollar revenue increased 4% year-on-year with Real Average Spend remaining flat.

The Pizza Inn delivery App has been launched in Eswatini with focused marketing initiatives implemented to drive delivery sales. The Galito’s delivery App has subsequently been launched in Q4 FY 2024.

OUTLOOK

The Zimbabwean operations were negatively affected for a short period in April by disruptions that stemmed from the introduction on the 5th of April 2024 of the ZiG, which replaced the ZWL as the local currency. However, the relative stability of the ZiG since its introduction has been beneficial in retaining customers, preserving operating margins and reducing borrowing costs. The long-term success of the ZiG and the contingent benefits will depend on both market confidence and the Government’s commitment to consistent monetary policy. In the Regional operations, the recent strengthening of the Kenyan Shilling has contributed to market stability and a more favourable trading environment.

The short to medium term strategy will hinge on increasing footfall into the existing store network through value offerings and intensified promotional and marketing initiatives. Our Operations and Franchising Divisions are focused on ensuring strict adherence to our brand standards, product quality and customer service to optimise the overall customer experience. The Group is leveraging technology to drive the latter, using customer feedback platforms to continuously improve our products and customer service. We will continue to grow our store footprint, with the Group intending to open a further 55 company-owned stores, up to 31 December 2024.

There is still significant growth potential from the delivery segment and growing and improving this Revenue stream remains a key focus area with significant progress made so far in the financial year.

Despite the reprieve in exchange rate pressures, the Group remains committed to maintaining strict cost controls to ensure margins are protected and ensuring the top-line growth initiatives translates into improved profitability.

B. Dionisio
GROUP CHIEF EXECUTIVE OFFICER
15 MAY 2024


Simbisa Brands Limited – Trading update for the third quarter ended 31 March 2024

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