Simbisa Brands shifts focus to growing regional operations

 Simbisa Brands shifts focus to growing regional operations
Published: 10 October 2019
Simbisa Brands invested ZWL$18.4 million in the year ended June 30, 19 on expansion and maintenance of its existing counters to a best-in-class standard as it forges ahead to consolidate its share of the local market. In the period, the group's net cash flow from operating activities surged 182% to ZWL$57.5 million from ZWL$20.41 million reported in the year ended June 30, 2018. This reflects a 90% cash generating ratio from 73% in the previous year. Of the total, 56% was injected into capital expenditure - new stores and other investment activities, 18% to pay off debt at 14.6% and the balance kept in the business for future use.
Simbisa Brands opened 46 new counters during the period under review. Of the total, 17 were opened in Zimbabwe and 29 in the region. In the past two years, about 76% of the group's capex was spent in Zimbabwe with the region taking 24%. During the period, 59% of capex was channelled to Zimbabwe operations while the region took 41%. "That's a clear strategic intent. We are going to keep growing our counters in Zimbabwe, but we are now putting in rubber to the road in the region. We are pressing hard and opening stores. We have got a great management foundation and we are going to grow our regional business as big as possible," group chief executive officer Basil Dionisio told an analysts briefing.
The group has a total of 459 stores. Of those, 80% are owned and operated by Simbisa while the remainder comes from other brands. Zimbabwe has 209 shops, Kenya 141, Zambia 25, Ghana 19, Mauritius 15 and Namibia 8. It also has licensed markets in DRC, Swaziland and Malawi.
In the period, revenue for the group nearly doubled to ZWL$390.8 million from ZWL$204.7 in the previous year. Of the total, Zimbabwe operations contributed 70% and 30% came from the region. Previously, Zimbabwe contributed 65% while the region was at 35%. Driven by exchange rate movements, total revenue in Zimbabwe rose 79% to ZWL255.1 million from ZWL$142.3 m in FY18. Revenue generated by regional operations increased 12% year-on-year in USD-terms and 118% from prior year in Zimbabwe Dollar terms to ZWL$135.9 million from ZWL$62.4 million in FY2018.
Deteriorating economic conditions in Zimbabwe which resulted in erosion of consumer earnings have negatively impacted sales volumes and this has seen a general trend of customer down-trading. Also, high and escalating inflation and foreign currency exchange rates are putting downward pressure on Gross Profit and Operating Margins. In order to move in tandem with changes in the market, the group had to establish an optimal pricing strategy with controlled price adjustments necessary to maintain margins while also keeping prices competitive and affordable to an increasingly price-sensitive market.
Like any other business, disciplined cost of sales management and implementing a strict cost-control strategy has also been key to maintaining margins in the period. Customer counts dropped 5% year-on-year. Inflationary-driven price increases saw average spend rising to 89% compared to prior year. Efforts to defend the Zimbabwe operation's margins paid off and the gross profit margin improved versus the prior comparable period as did operating profit margins, which increased from 16.6% in FY2018 to 20.8% in FY2019.
In Kenya, customer count grew 4% versus the prior year on a same store basis and 8% versus prior year when including the new stores opened in the period under review, with the full financial impact projected to come through from the first half of FY2020. Kenya closed the year with 141 counters in operation.
Following the restructure in which the group acquired the minority interest to own 100% of the Zambian business, there has been a marked improvement in the business' performance over the period with top line growth registered in local currency terms despite the closure of 10 counters in the second half of FY2018. Gross profit and operating margins also improved in FY2019. The period closed with 25 counters operating in this market.
All of the group's regional operations registered growth in operating profit and firming operating margins during the period with the exception of Mauritius where increased competition and stock cost control issues have brought margins under pressure.
Changes to the VAT Policy in Ghana enacted in August 2018 have impacted the business through an effective 5% increase in cost prices and import duties as well as putting pressure on consumer spend. The market also experienced exchange rate weakness during the period under review. As such, the Ghana operations' revenue in US Dollar terms fell 7% compared to prior year. However, loss in revenue has been countered by cost containment measures which resulted in an increase in operating profit in US Dollar terms.
Simbisa Brands continues to operate in the DRC under a master franchise arrangement - the business is performing well and operations have been expanded into Kinshasa through the opening of four new counters in the first half of FY2019.
Net gearing ratio for the group went up from 20% to 31% as a result of exchange rate movements.
Operating expenditures for the group increased by 94% to ZWL$153.6 million owing to the 2% tax transaction, power cuts, increase in fuel consumption. But when expressed to turnover margins it increased from 38% to 39.3%. So there is quite some pressure from a cost point of view especially in Zimbabwe.
Net interest expense was up 21% to ZWL$1.7 million, when expressed as percentage to EBTIDA the interest cover is quite big about 36 times, quite comfortable to service group's debt. Funding sources - 50% of it comes from equity, 23% net borrowings and 25% negative working capital. After tax profit for the group increased 127% to ZWL$32.1 million from ZWL$14.2 million in the previous year.
A net foreign exchange loss of ZWL 2.7 million was recorded which includes exchange losses arising from the revaluation of foreign denominated assets and liabilities on the Zimbabwe Balance Sheet. These balances were previously carried at an exchange rate of 1:1 up to end 22 February 2019 and revalued using applicable interbank rates thereafter. The group has invested $197.1 million in long term assets.
The company declared a final dividend of ZWL 0.91 cents per share.

The group noted that it is in a good position to navigate the evolving environments in the markets in which it operates.
- finx
Tags: Simbisa,


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