Simbisa Brands (Zimbabwe) increases same-store customers and average spend by 4% and 10% respectively

By Published On: August 28th, 2019Categories: Articles, Corporate announcement

Simbisa Brands Limited (SIM.zw) HY2019 Interim Report

We have extracted the Chief Executive Officer Statement from the 2019 half year interim report of Simbisa Brands Limited (SIM.zw), listed on the Zimbabwe Stock Exchange:

TRADING ENVIRONMENT

Macroeconomic challenges prevailed in the six months under review particularly in Zimbabwe where foreign currency shortages, public policy changes and rampant inflation have led to consumer uncertainty and spending pressure whilst also increasing the cost of doing business. Challenges in the regional business mainly emanate from currency risk, increased competition and changes in taxation, fuel and utility prices. Our second largest market, Kenya, has benefited from a stable trading environment for the period under review.

GROUP PERFORMANCE OVERVIEW

ZIMBABWE
As aforementioned, the economic instability in Zimbabwe presented a series of challenges during the period under review. Persistent foreign currency shortages, inflationary pressures and the 2% transaction tax that was introduced in October 2018 have increased the cost of doing business. The Group’s response has been to focus on disciplined cost of sales management and controlled price adjustments necessary to maintain our margins. The Group also had to act decisively in order to raise sufficient foreign currency to meet our foreign royalty fee obligations, capex and Intellectual Property-related raw material imports. A decision was made in December 2018 to discount our prices where payable in US Dollars in order to raise the foreign currency to meet these critical obligations.

Through increased customer counts and average spend, revenue increased 55% year-on-year across existing stores with a further contribution from 8 new counters opened during the period to bring total revenue during the six month period to US$ 108,65 m, up 60% on prior year. The Group has managed to maintain GP margins and though disciplined cost management have increased Operating Profit Margins to 22,6% in 1H FY2019 (17,7% in 1H FY2018) resulting in a 105% year-on-year increase in Operating Profit to US$ 24,53 m.

Despite challenges in this market, our experienced management team’s efforts combined with a robust business model have allowed the Group to defend our market share and continue to grow the business. Capex of US$ 7,39 m was outlaid during the period under review to maintain our existing counters to a best in class standard and roll out new counters to close the period with 201 counters. We continue to generate value for our stakeholders through delivery of consistent, quality restaurant experiences to our valued customers.

REGION
Revenue generated by our regional operations increased 10% from prior year to US$ 34,62 m (US$ 31,43 m in 1H FY2018). While the region has achieved top line growth and operating margins have remained firm, exceptional income items in the prior year resulted in a 6% decline in Operating Profit to US$ 2,91 m in the period under review compared to US$ 3,09 m in the prior year. The focus on the region has been to streamline the business, defend our market position and ensure existing operations generate positive returns on investment. In the second half of the year we intend to scale up the regional business and grow our market share with particular focus on Kenya’s operations and with the financial impact projected to come through from 1H FY2020.

KENYA
While our operations in Kenya have benefited from a relatively stable trading environment during the period under review, taxation increases on fuel have put consumers’ disposable income under pressure. The Kenyan Shilling remained relatively stable against the US Dollar during the six month period under review.

The Group increased same-store customers and average spend by 4% and 10% respectively versus the prior comparable period and the opening of an additional 7 counters during the period contributed a further 2% to revenue growth and closed the period with 130 counters.

ZAMBIA
While performance in our Zambia market has improved, progress has been slower than antici