Half year results for the six months ended 30 S...

MEIKLES LIMITED

ABRIDGED UNAUDITED FINANCIAL RESULTS FOR THE SIX MONTHS ENDED

30 SEPTEMBER 2015

CHAIRMAN’S STATEMENT

Group Overview

Group turnover for the six month period to 30 September increased by 15% relative to the previous period. The contribution to turnover by the different segments of the Group is set out in Note 6.

Operating income increased by 18% relative to the previous period.

Whilst operating expenses excluding depreciation have increased by 3%, they have reduced to 20% of turnover from 22% recorded in the comparative period. The increase in operating expenses was caused by a growth in rents payable to third parties as a result of growth in turnover and by a growth in utility connected expenditures. Other costs, including employment costs, were static. There has been a combination of employment cost reductions in segments of the Group and the creation of further employment opportunities from growth projects in the Group.


EBITDA increased by $6.4m relative to the previous period. The contribution to EBITDA by the different segments of the group are set out in Note 6.

Interest payable decreased by 14% mainly due to the reduced borrowings. Interest received decreased by 41%, as a result of reduced interest receivable on outstanding balances due from the Reserve Bank of Zimbabwe. Net interest payable increased by 12% to $3.7 million.

Fair value gains on biological assets reduced from $3.6 million to $0.66 million. Shareholders are reminded that these sums are non-cash flow in nature.

The movements relative to the Balance with the Reserve Bank of Zimbabwe and Treasury Bills are detailed in Notes 4 and 5.


Group net borrowings are detailed in Note 7. Shareholders will observe that net borrowings have decreased by approximately $22 million over the six month period.

Negotiations on further sums considered due from the Reserve Bank of Zimbabwe as disclosed in the 31 March 2015 annual report are in progress. It is  expected that this matter will be finalised very shortly and Shareholders will be advised  further at the appropriate time. Any resultant adjustment to the financial results will be disclosed to Shareholders and will be included in the results of the second half of the current financial year.

With the exception of trade and other receivables which reflect a positive reduction for the period, other balance sheet items remained substantially unchanged in total. Segment assets and liabilities are disclosed in Note 6.

Segment Commentary

TM Supermarkets trading as TM and PnP

Two new supermarkets were opened in Harare (Avondale and city centre) during the period to 30 September but neither was operating for the entire period. Other supermarkets were refurbished and this process is continuing into the second half of the year.


Turnover increased by 17% and operating income expressed as a percentage of turnover increased from 18% to 19.5%.


Expenses expressed as a percentage of turnover decreased marginally from 16.5% to 16%.


Stock turns improved from 7.1 to 8.7 times.

TM is well positioned to redeem its term borrowings on schedule and these will be repaid progressively over the next twelve months.

A major shopping centre development in Borrowdale in which TM is a participant will commence shortly.

It is pleasing to note that TM does provide opportunities for further employment in Zimbabwe and in this context it is an important contributor to the economy.

On the 24 November 2015, The Confederation of Zimbabwe Retailers presented TM PnP Supermarkets with a number of awards, including ‘Supermarket of the Year – Consumer’s Choice’ and ‘Best Retailer – Environmental Management’.


Stores – Meikles Stores and Meikles Mega Market

The two divisions have not made a positive contribution to EBITDA in the six month period, but they have achieved substantial financial improvement and have performed in accordance with expectations. Shareholders have been advised that these divisions will not make a loss in the second half of the year. This remains appropriate.

The Confederation of Zimbabwe Retailers presented Barbours Department Store with the ‘Clothing Retailer of the Year’ award on 24 November 2015.


Tanganda
Tanganda has been adversely affected in the period to 30 September by a decrease in international bulk tea prices. Average prices fell to $1.28/kg from $1.32/kg for the comparative period. It is expected that average bulk tea prices will increase over the forthcoming period but will not yet reach the favourable levels realised in the 2014 financial year.

Tanganda needs another two rainy seasons including the forthcoming season to realize a material contribution from its diversification programme. This programme does encapsulate the future of Tanganda, as a major contributor to the agricultural sector of the economy.

The new packing machines are in operation in Mutare, and there is greater mechanisation on the estates. The cost of producing both bulk and packed tea has reduced, with considerable benefit to the company.

There may be uncertainty concerning the expectations of rains in the forthcoming season. Tanganda has implemented an appropriate defensive strategy.

On 8 October 2015, Zimtrade presented Tanganda with the ‘Zimtrade 2014 Best Exporter of the Year Award – Processed Food Sector’.

Hospitality
The two hotels in Zimbabwe have been affected by the new value added tax, which has had a material effect on revenue, as the value added tax could not be passed on to guests in full. The South African visa requirements have also had a negative effect on tourist arrivals.


Occupancies in Harare have shown a modest increase, while those at Victoria Falls have declined.


Expenditures in both hotels have decreased.


The next phase of renovation at Victoria Falls will begin early in 2016. The hotel will be in a strong position to defend its competitive position.

Meikles Hotel was presented with the ‘2015 Best City Hotel’ award by Association of Zimbabwe Travel Agents (AZTA) in September 2015 for the 23rd consecutive year. The Victoria Falls Hotel was voted the ‘4th Best Resort in Africa & Middle East 2015’ by the Travel and Leisure magazine.

Outlook
The different segments of the Group are expected to continue to enhance their performance. Growth associated with a number of projects underway in segments of the Group are substantial and will provide a platform for further growth in earnings. There may be uncertainties relating to the weather and to the operating environment in general.

Appreciation

I would like to extend my appreciation to our customers, suppliers, shareholders and regulatory authorities for their continued support. I would also like to extend my appreciation to my fellow Directors, and to management and staff for their dedication and commitment.

Dividend

The Board has not declared an interim dividend.

JRT Moxon

Executive Chairman

24 November 2015

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2015
Unaudited Unaudited
30 September 2015 30 September 2014
US$ 000 US$ 000
Revenue 225,690 196,254
Net operating costs (225,241) (202,191)
Operating profit / (loss) 449 (5,937)
Investment income 1,783 3,047
Finance costs (5,446) (6,329)
Net exchange difference (177) 21
Loss recognised on disposal of Treasury Bills (4,009) -
Fair value loss on disposal of  available-for-sale financial assets (3,691) -
Fair value adjustments on biological assets 657 3,646
Loss before tax (10,434) (5,552)
Income tax (expense) / credit (373) 2,734
Loss for the period (10,807) (2,818)
Other comprehensive income, net of tax
Items that may be reclassified subsequently to profit or loss:
Fair value gain on available-for-sale financial assets 10,722 -
Other comprehensive income for the period, net of tax 10,722 -
TOTAL COMPREHENSIVE LOSS FOR THE PERIOD (85) (2,818)
(Loss) / income for the period attributable to:
     Owners of the parent (12,179) (1,976)
     Non-controlling interests 1,372 (842)
(10,807) (2,818)
Total comprehensive (loss) / income attributable to:
     Owners of the parent (1,457) (1,976)
     Non-controlling interests 1,372 (842)
(85) (2,818)
Loss per share (cents)
Basic (4.80) (0.78)
Diluted (4.46) (0.72)
Headline loss per share (cents) (2.29) (1.70)
Diluted headline loss per share (cents) (2.13) (1.58)

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 SEPTEMBER 2015
Unaudited Audited
30 September 2015 31 March 2015
US$ 000 US$ 000
ASSETS
Non-current assets
Property, plant and equipment 124,866 125,145
Investment property 248 249
Investment in Mentor Africa Limited 22,931 22,931
Biological assets 42,834 41,083
Intangible assets 124 124
Other financial assets 12,088 12,246
Deferred tax 4,617 4,201
Total non-current assets 207,708 205,979
Current assets
Balances with Reserve Bank of Zimbabwe - 7,229
Treasury Bills 11,727 22,942
Inventories 36,902 35,626
Trade and other receivables 13,058 19,893
Other financial assets 4,192 4,093
Cash and bank balances 16,188 8,883
 Total current assets 82,067 98,666
Total assets 289,775 304,645
EQUITY AND LIABILITIES
Capital and reserves
Share capital 2,538 2,538
Share premium 1,316 1,316
Other reserves 10,808 87
Retained earnings 103,755 115,934
Equity attributable to equity holders of the parent 118,417 119,875
Non-controlling interests 18,710 17,281
Total  equity 137,127 137,156
Non-current liabilities
Borrowings 15,998 24,402
Deferred tax 13,215 12,508
Total non-current liabilities 29,213 36,910
Current liabilities
Trade and other payables 59,955 60,397
Borrowings 63,480 70,182
Total current liabilities 123,435 130,579
Total liabilities 152,648 167,489
Total equity and liabilities 289,775 304,645

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2015

Share
capital
Share
premium
Non distributable reserves Investments revaluation
 US$ 000  US$ 000  US$ 000   US$ 000 
2015 – unaudited
Balance at 1 April 2015 2,538 1,316 12,559 (12,472)
Loss for the period - - - -
Other comprehensive income for the period - - - 10,721
Funding from non-controlling interests -Mopani Property Development (Private) Limited -
-
- -
Balance at 30 September 2015 2,538 1,316 12,559 (1,751)
2014 –unaudited
Balance at 1 April 2014 2,538 1,316 12,559 12,559
Loss for the period - - - -
Balance at 30 September 2014 2,538 1,316 12,559 12,559

   

Retained earnings Attributable  to owners of parent Non
controlling
interests
Total
 US$ 000   US$ 000  US$ 000  US$ 000
2015 - unaudited
Balance at 1 April 2015 115,934 119,875 17,281 137,156
Loss for the period (12,179) (12,179) 1,372 (10,807)
Other comprehensive income for the period - 10,721 - 10,721
Funding from non-controlling interests -Mopani Property Development (Private) Limited - - 57 57
Balance at 30 September 2015 103,755 118,417 18,710 137,127
2014 -unaudited
Balance at 1 April 2014 155,455 171,868 14,222 186,090
Loss for the period (1,976) (1,976) (842) (2,818)
Balance at 30 September 2014 153,479 169,892 13,380 183,272

   


CONSOLIDATED STATEMENT OF CASH  FLOWS
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2015
Unaudited Unaudited
30 September 2015 30 September 2014
 US$ 000   US$ 000
Cash flows from operating activities
Loss before tax (10,434) (5,552)
Adjustments for:
- Depreciation and impairment of property, plant and equipment and investment property 4,541 4,402
- Net interest 3,663 3,282
- Net exchange difference 177 (21)
- Fair value adjustments on biological assets (657) (3,646)
  • Loss recognised on discounting Treasury Bills
4,009 -
  • Fair value loss on disposal of  available-for-sale financial assets
3,691 -
- Loss on disposal of property, plant and equipment 23 168
Operating cash flow before working capital changes 5,013 (1,367)
Increase in inventories (1,277) (2,317)
Decrease in trade and other receivables 6,654 192
(Decrease) / increase in trade and other payables (417) 2,799
Cash generated from / (used in) operations 9,973 (693)
Income taxes paid (86) (105)
Net cash generated from / (used in) operating activities 9,887 (798)
Cash flows from investing activities
Payment for property, plant and equipment (4,316) (13,763)
Proceeds from disposal of property, plant and equipment 30 63
Proceeds from sale of Treasury Bills 22,951 11,418
Net movement in other  investments 61 (61)
Net expenditure on biological assets (1,098) (921)
Investment income 297 457
Net cash generated from / (used in) investing activities 17,925 (2,807)
Cash flows from financing activities
Net decrease in interest bearing borrowings (15,106) (6,803)
Proceeds on disposal of partial interest in a subsidiary without loss of control 57 -
Finance costs (5,446) (6,330)
Net cash used in financing activities (20,495) (13,133)
Net  increase / (decrease) in cash and bank balances 7,317 (16,738)
Cash and bank balances at the beginning of the period 8,883 22,952
Net effect of exchange rate changes on cash and bank balances (12) (7)
Cash and bank balances at the end of the period 16,188 6,207

NOTES TO THE ABRIDGED UNAUDITED FINANCIAL STATEMENTS

1. Basis of preparation

The abridged unaudited financial results 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. These abridged unaudited results do not include all information and disclosures required to fully comply with IFRS and should be read in conjunction with the Group’s annual report for the year ended 31 March 2015.

2. Currency of reporting

The abridged unaudited financial results are presented in United States dollars which is the functional currency of the Group.

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 applied in the preparation of the Group’s annual financial statements for the year ended 31 March 2015, with no significant impact arising from subsequent new and revised International Financial Reporting Standards (IFRSs).

4. Balance with the Reserve Bank of Zimbabwe

The movement in the balance with the RBZ from 1 April 2015 to 30 September 2015 is analysed below:

Unaudited Audited
30 September 2015 31 March 2015
Note US$ 000 US$ 000
Balance at beginning of period 7,229 90,861
Nominal value of Treasury Bills received i (8,729) (71,156)
Provision for settlement discount - (14,705)
Interest 1,500 2,229
Balance at end of period - 7,229
Analysis of balance
Amount due in cash on 31 March 2015 ii - 5,000
Interest - 2,229
Balance at end of period - 7,229

Notes:

  1. The fair value of the Treasury Bills received by the Company from the RBZ is US$7.6 million and the basis of calculating the fair value of the Treasury Bills is set out in note 5.
  2. The amount of US$5 million which was due and payable in cash by 31 March 2015 was received in the form of Treasury Bills with a nominal value of $6.5 million on 31 August 2015.

5. Treasury Bills

Details of the movement in the Treasury Bills are as follows:

Unaudited Audited
30 September 2015 31 March 2015
US$ 000 US$ 000
At fair value:
Balance at the beginning of the period 22,942 -
Treasury Bills received during the period 7,611 47,084
Treasury Bills disposed during the period (26,960) (27,166)
Fair value adjustments 6,648 -
Treasury Bills on hand at 30 September 2015 10,241 19,918
Accrued interest 1,486 3,024
Balance at 30 September 2015 11,727 22,942

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 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.

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.

Treasury Bills with a nominal value of US$13.1 million are pledged as security for loans.

Treasury Bills issued by the Reserve Bank of Zimbabwe held at 30 September 2015:

Unaudited Audited
30 September 2015 31 March 2015
At fair (market) value US$ 000 US$ 000
Treasury Bills maturing on 10 April 2017 with a coupon rate of 5% 11,727 -
Treasury Bills maturing on 11 June 2018 with a coupon rate of 2% - 10,922
Treasury Bills maturing on 10 June 2019 with a coupon rate of 2% - 8,375
Treasury Bills maturing on 23 December 2016 with a coupon rate of 5% - 3,645
11,727 22,942

The Treasury Bill number ZTB73120150410Z on  hand at 30 September 2015 was re-issued on 10 April 2015  with a nominal value of  $31,886,811. This Treasury Bill was partially disposed during the period and the nominal value on hand  at  the reporting  date was $13.1 million.  The coupon  payment dates are  10 April and 10 October.

6. Segment information

Unaudited Unaudited
30 September 2015 30 September 2014
US$ 000 US$ 000
Revenue
Supermarkets 196,731 167,995
Hotels 8,267 8,814
Agriculture 11,193 11,135
Departmental stores 3,103 3,773
Wholesaling 7,230 5,395
Corporate* (834) (858)
225,690 196,254
EBITDA
Supermarkets 6,963 3,182
Hotels 1,189 1,396
Agriculture (292) (878)
Departmental stores (570) (1,957)
Wholesaling (874) (1,049)
Corporate* (1,425) (2,228)
4,991 (1,534)
The EBITDA figures are before Group management fees.
Unaudited Audited
30 September 2015 31 March 2015
US$ 000 US$ 000
Segment assets
Supermarkets 87,644 83,464
Hotels 49,200 49,216
Agriculture 74,077 75,270
Departmental stores 31,045 30,516
Wholesaling 3,844 2,048
Corporate* 43,965 64,131
289,775 304,645
Segment liabilities
Supermarkets 50,826 49,524
Hotels 21,473 20,922
Agriculture 30,736 33,933
Departmental stores 15,938 16,533
Wholesaling 4,352 3,542
Corporate* 29,323 43,035
152,648 167,489
*Intercompany transactions and balances have been eliminated from the corporate amounts. Corporate also includes other subsidiaries that are immaterial to warrant separate disclosure
7. Net borrowings
Non-current borrowings 15,998 24,402
Current borrowings 63,480 70,182
Total borrowings 79,478 94,584
Cash and cash equivalents (16,188) (8,883)
Net borrowings 63,290 85,701

The weighted average capitalisation rate on funds borrowed was 11.81% (2014: 12.61%) per annum. The borrowings are secured by freehold land and buildings with a carrying value of $61.8 million, Treasury Bills with a nominal value of $13.1 million, inventory worth $6.5 million, trade receivables amounting to $4.7 million, negative pledge over assets for borrowings worth $4.4 million and unlimited cross company guarantees on  borrowings amounting to $24.5 million.

Unaudited Unaudited
30 September 2015 30 September 2014
US$ 000 US$ 000
8. Depreciation, amortisation and impairment
Depreciation of property plant and equipment 4,417 4,324
Impairment of property, plant and equipment 123 77
Depreciation of investment property 1 1
9. Other information
Capital commitments authorised by the Directors but not contracted 11,880 14,128
Group’s share of capital commitments of joint operation - 53

10. Events after reporting date
There have been no significant events after the reporting date at the time of issuing this report.

Website : www.meiklesinvestor.com

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