MIK Meikles Limited

MEIKLES LIMITED

ABRIDGED AUDITED FINANCIAL RESULTS FOR THE YEAR ENDED 31 MARCH 2020

CHAIRMAN’S STATEMENT

It gives me pleasure to present the Chairman’s Statement for the financial year ended 31 March 2020.

FINANCIAL OVERVIEW

The Group did not anticipate the advent of COVID-19. The impact of the virus has affected the latter part of the financial year under review. It is apparent that the continued impact of the virus will affect the world and Zimbabwe for an unpredictable period into the Group’s new financial year.

The Group restructured its finances in recognition of stresses in the local environment. It is fortunate that the structural adjustments will also enable the Group to withstand damages caused by the virus.

The Group decided sometime ago to ensure that it remains in a position to fund capital expansion projects, replacement requirements, provide working capital and be in a position to continue paying dividends to shareholders, without placing adverse pressure on Group resources.

Shareholders are advised that the Group financial restructuring has been successfully implemented. The Group is in a net cash in hand position, but in the process of achieving this position most Group bank borrowings were repaid within the year under review and subsequent to the year-end, the remaining out of term bank borrowings have been repaid. This position has been achieved from normal operating cash flows and puts the Group in an unsurpassed financial position since the dollarisation in 2009. The sale of the Harare based hotel has increased the Group’s total current assets which are substantially more than current liabilities.

FINANCIAL REPORTING

There were two developments during the financial year under review with significant impact to financial reporting: -

IAS 29 - Financial Reporting in Hyperinflationary economies

The Public Accountants and Auditors Board (PAAB) issued a pronouncement in October 2019 indicating that factors and conditions to apply International Accounting Standard (IAS) 29 - Financial Reporting in Hyperinflationary Economies had been met in Zimbabwe. In accordance with IAS 29, historical cost financial information has been restated for changes in general purchasing power of the Zimbabwean Dollar (ZWL). Accordingly, the inflation adjusted financial statements represent the primary financial statements of the Group. The historical cost financial statements have been provided as supplementary information. 

Adoption of IFRS 16 - Leases

The Group adopted International Financial Reporting Standard (IFRS) 16 for the first time on 1 April 2019. The impact of the adoption of IFRS 16 is set out in note 8 of these abridged financial results.

GROUP FINANCIAL PERFORMANCE

 
The Group delivered strong financial results in a tough operating environment with several impediments. Commentary on financial performance is based on inflation adjusted figures.

Group revenue for continuing operations grew by 6% from ZWL 8.3 billion in 2019 to ZWL 8.8 billion in the year under review.

Profit for the year grew from ZWL 320.6 million in prior year to ZWL 1.4 billion. Growth in Profit for the year was boosted by ZWL 118.7 million profit on disposal of Meikles Hotel.

Total comprehensive income for the year was ZWL 1.1 billion (2019: ZWL 561.4 million), of which ZWL 790.8 million was attributable to the owners of the parent with the remaining balance of ZWL 340.7 million being for minority shareholders.

Segmental contributions to the Group’s financial performance is set out in note 5 of these abridged financial results.. 

REVIEW OF OPERATIONS

Supermarkets - trading as TM Pick n Pay

Revenue increased by 2% over the previous year in inflation adjusted terms. Sales volume declined by 22% due to diminishing customer disposable income over the period.

Profit after tax grew to ZWL 674.8 million from a loss of ZWL 21 million in the previous year. Profit growth was achieved through a focussed approach to margin and operating expenditure control.

The profit after tax was after deducting exchange losses of ZWL 380.6 million. These exchange losses arose from foreign currency denominated liabilities (legacy debt) accumulated prior to introduction of local currency on 22 February 2019. Going forward, there will be no exchange losses as legacy debt exposure has now been eliminated. 

Legacy debt reduced to US$ 2.23 million at 31 March 2020 from US$ 13.3 million at the beginning of the financial year.  The payment of legacy debt was funded from internally generated funds. After year-end, US$ 0.6 million was paid, leaving the outstanding balance at US$ 1.63 million. In addition, ZWL 1.63 million was remitted to the Reserve Bank of Zimbabwe (RBZ) to complete all processes according to the RBZ’s guidelines on blocked funds or “legacy debt” contained in Exchange Control Directive RU28 dated 21 February 2019 and Exchange Control Circular No.8 of 24 July 2019. Accordingly, it is anticipated the RBZ will issue an instrument that will settle US$ 1.63 million without further costs to the segment.

The segment invested ZWL 386.6 million in seven (7) store upgrades and construction of an upmarket mall in Marondera.

The clearance of foreign currency denominated liabilities has well positioned the segment for accelerated store upgrades, branch network expansion, commencement of dividend payment to shareholders and a boost on the working capital front.  

Agriculture

Profit after tax was ZWL 157.2 million (2019: ZWL 332 million).

The hailstorm of January 2019, Cyclone Idai in March 2019 as well as very dry and hot September to November 2019 period affected our tea production and ensuing season’s macadamia crop. The Company’s annual made tea production of 8 319 tonnes (2019: 10 171 tonnes) was reflective of these adverse weather conditions.

International tea prices weakened by 14% from US$ 1.64 per kilogram in prior year to US$ 1.44 per kilogram in the year ended 31 March 2020 due to increased supply of tea by Kenya which has not been matched by corresponding world demand.

The much-needed RBZ authority to increase promotional spend in South Africa has been secured. This will help to support market penetration efforts to grow packed tea exports.

Export earnings from macadamia nuts, avocadoes and coffee grew by 78% from US$ 4.5 million in prior year to US$ 8 million in the year ended 31 March 2020. As a percentage of total exports, these three crops contributed 43% up from 25% in the prior year. Contribution of the high value crops to the Company’s export earnings is expected to rise to 60% by March 2022 as the bulk of them reach maturity. In volume terms, macadamia and avocado export sales grew by 129% and 39% respectively.

To mitigate the inefficiencies caused by power shortages in the country, the Company has embarked on a 7.5 Mega Watt solar project covering all estates and Mutare factory. Phases 1 to 3 of the project covering Ratelshoek, Tingamira and Jersey estates are already under implementation. Ratelshoek’s 1.8 Mega Watt solar plant is expected to be completed by September 2020. Tingamira’s 1.6 Mega Watt and Jersey’s 2.0 Mega Watt plants are expected to be completed by December 2020. By end of December 2020 we will have implemented 72% of the project. This project is expected to result in an efficient and integrated power supply system that will give impetus to the growth and maturity of our high value crops and efficient crop processing.

Hospitality

Profit after tax from continuing operations increased to ZWL 184.7 million in the current year from ZWL 72.5 million in the previous year.

The disposal of Meikles Hotel was completed at the end of February 2020 and control was transferred to the buyer in March 2020. The financial results of the hotel for the period up to the date of disposal as well as the profit on disposal are included under discontinued operations.

The refurbishment of The Victoria Falls Hotel was due to commence in April 2020 but has been disrupted by the outbreak of the COVID-19 pandemic. The hotel closed in March 2020 when international travel and tourism stopped as countries implemented travel restrictions and lockdowns to contain the spread of the corona virus.

Properties

Plans to renovate and upgrade the Group’s property portfolio are at an advanced stage and the roll out is anticipated to commence during the second half of the forthcoming financial year. Several tenants have expressed interest to lease the properties which had been left vacant following the closure of the Group’s departmental stores.

Security Services

Meikles Guard Services fared well during the financial year and was not disrupted by loss of contract when the departmental stores closed. The segment secured additional contracts from third parties during the year.

MEIKLES FOUNDATION

During the year under review, Meikles Foundation played its part in providing much needed help to disadvantaged members of society. Further details on the Foundation’s activities are provided in the Annual Report.

CORPORATE SUSTAINABILITY

With the growing call for sustainability following the COVID-19 pandemic, the Group made a strategic decision to realign existing practices with consistent sustainability values across the Group. In doing so, the Group opted to adopt the Global Reporting Initiatives (GRI) Standards as a catalyst and business strategy for re-engineering our value chains for long term business success and sustainable decision making into the future. Sustainability will be the cornerstone for maintaining the Meikles legacy created over a century. Our sustainability strategy will now anchor how our brands compete and deliver value to our customers and stakeholders in our markets. The Group will calibrate practices across all subsidiaries for the successful implementation of the strategy.

DIVIDEND

In view of the Group’s financial results for the year ended 31 March 2020, the Board has declared a final dividend of 42.5 ZWL cents per share, bringing the total dividend for the year to 60 ZWL cents. The final dividend will amount to ZWL 111 million. A full dividend announcement will be published separately in due course. 

DIRECTORATE

The Board welcomed, Ms Cathrine Chitiyo, Mr Stewart Cranswick and Mr Simon Hammond as Independent Non-Executive Directors of the Company as part of the steps to comply with the requirements of the Companies and Other Business Entities Act (Chapter 24:31) and Statutory Instrument (SI) 134 of 2019 (Zimbabwe Stock Exchange Listings Requirements).

STRATEGY AND OUTLOOK

The financial strategy set out under Financial Overview in this report will continue to be applied during the forthcoming year. The Group is well placed to support its long-term objectives. 

Despite the absence of income from Hospitality together with its continuing cost commitments, the Group’s profit performance to date for the new financial year is ahead of expectations, but there are uncertainties going forward in terms of risk.

The COVID-19 impact is causing supermarkets to close for periods to facilitate disinfection whenever a case of the disease is identified. The cost of such closures is significant but necessary. Nevertheless, the Group is to continue with its expansion and renovation plans with a focus on both Tanganda and Supermarkets.

The Victoria Falls Hotel is closed and is on care and maintenance basis. Fortunately, the hotel has working capital resources which will enable it to maintain its financial independence well into the next calendar year. Shareholders are advised that the Cape Grace hotel is in the same position

APPRECIATION

I would like to extend my appreciation to our customers as well as suppliers for their continued support and to our shareholders, stakeholders and regulatory authorities for their assistance and guidance. I would also like to extend my thanks and appreciation to fellow Board members, management and staff for their dedication and commitment.

JRT Moxon

Executive Chairman

19 August 2020

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

*Historical cost financial results are provided only as supplementary information. The primary financial statements are the inflation adjusted results. The auditor’s opinion relates only to the inflation adjusted financial results.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 MARCH 2020

*Historical cost financial results are provided only as supplementary information. The primary financial statements are the inflation adjusted results. The auditor’s opinion relates only to the inflation adjusted financial results.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 MARCH 2020

INFLATION ADJUSTED

HISTORICAL COST*

*Historical cost financial results are provided only as supplementary information. The primary financial statements are the inflation adjusted results. The auditor’s opinion relates only to the inflation adjusted financial results.

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 MARCH 2020

*Historical cost financial results are provided only as supplementary information. The primary financial statements are the inflation adjusted results. The auditor’s opinion relates only to the inflation adjusted financial results.

NOTES TO THE ABRIDGED AUDITED FINANCIAL RESULTS

1. Basis of preparation

The abridged audited 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. The historical costs have been adjusted for the effects of applying International Accounting Standard (“IAS”) 29 – ‘Financial Reporting in Hyperinflationary Economies’ . Refer to note 2.2 for further details.

2. Accounting policies

Accounting policies and methods of computation applied in the preparation of these abridged financial results are consistent, in all material respects, with those used in the prior year. New applicable standards and improvements which became effective in the current year have been complied with.

2.1 Functional and presentation currency

On 22 February 2019, the Company and its subsidiaries changed their functional currency from the US$ to the RTGS$ following the promulgation of Statutory Instrument 33 of 2019 (SI 33/19). SI 33/19 prescribed exchange rates and treatment of foreign currency transactions which conflicted with IAS 21 - “The Effects of Changes in Foreign Exchange Rates”.

The Group opted to comply with SI 33/19 in translating foreign currency denominated transactions conducted from October 2018 to 22 February 2019. The decision to comply with SI 33/19 restricted full compliance with IAS 21. The Group’s deviation from IAS 21 was not intentional but was necessitated by the requirement to comply with laws and regulations within Zimbabwe. In the current year, the Group has appropriately accounted for foreign currency transactions. However, the comparative statement of profit or loss and other comprehensive income and statement of cash flows have USD transactions between the period 1 October 2018 and 22 February 2019 which were translated at a rate of US$1: ZWL1.

2.2 Hyperinflation 

On 11 October 2019, the Public Accountants and Auditors Board (“PAAB”) issued a pronouncement on the application of IAS 29. The pronouncement requires that entities operating in Zimbabwe with financial periods ending on or after 1 July 2019, prepare and present financial statements in line with the requirements of IAS 29.

The Directors have made appropriate adjustments to reflect the changes in the general purchasing power on the ZWL and for the purposes of fair presentation in accordance with IAS 29, these changes have been made on the historical cost financial information. Various assumptions have been made, with the significant assumption being the use of the consumer price indices (“CPI”), for the various years. Accordingly, the inflation adjusted financial statements represent the primary financial statements of the Group. The historical cost financial results are provided as supplementary information and as a result the auditors have not expressed an opinion on them.

The source of the price indices used was the Reserve Bank of Zimbabwe website. Below are the indices and adjustment factors used up to 31 March 2020:

3. Going concern

The Directors assess the ability of the Group to continue in operational existence in the foreseeable future at each reporting date. As at 31 March 2020, the Directors have assessed the Group’s ability to continue operating as a going concern and believe that the preparation of these financial results on a going concern basis is still appropriate. 

The Group’s segments have put in place various measures to mitigate the adverse impact of COVID-19 pandemic to the businesses. Apart from the hospitality segment, the rest of the Group’s segments are operating as they are classified as part of essential services. Their trading performance for three months to June 2020 is not significantly different from the period prior to outbreak of the pandemic. The hospitality segment closed at the end of March 2020 and its date of reopening remains uncertain. Both the hospitality segment and the Group have cash resources to fund operations for a prolonged period of care and maintenance.

4. Audit opinion

These abridged financial results should be read in conjunction with the complete set of financial statements for the year ended 31 March 2020, which have been audited by Deloitte & Touche Chartered Accountants (Zimbabwe) in accordance with International Standards on Auditing. The auditors issued a qualified opinion on the financial statements for the carryover effects of non-compliance with IAS 21 –‘The Effects of Changes in Foreign Exchange Rates’ from the prior year. The audit report includes a section on Key Audit Matters. The Key Audit Matters are on valuation of investment in Mentor Africa (Pty) Limited and valuation of biological assets. The auditor’s report is available for inspection at the Company’s registered address. The Engagement Partner responsible for the audit was Charity Mtwazi.

5. Segment information

Meikles Hotel

The Group disposed of Meikles Hotel as a going concern. The disposal included the property, plant and equipment and transfer of employees. The disposal was effected on the 1^st of March 2020, on which date control of the hotel passed. The summary of the profit / (loss) position from the discontinued operation and details of assets and liabilities disposed of are as set out below.

Greatermans Stores

The group exited the departmental stores segment during the first quarter of the financial year. The results of the departmental stores for the current year are disclosed as discontinued operations. The summary of the profit / (loss) position from the discontinued operation and details of assets and liabilities disposed of are as set out below.

The prior year comparative financial information from discontinued operations has been re-presented to include the operations classified as discontinued in the current period.

5.1 Discontinued operations (continued)

NOTES TO THE ABRIDGED UNAUDITED FINANCIAL RESULTS

During the course of the current year, the Group was in default on some of its loan covenants with lenders. These defaults were carried over prior years. Subsequent to year end all past due loans were expunged.

8. Implementation of IFRS 16

The Group has applied the new IFRS 16 that is effective for the current year. The Group used the modified retrospective approach, with no adjustment to equity and no restatement of the comparative information. IFRS 16 allows for the recognition of right of use asset and lease liability and the impact of the adoption of IFRS 16 on the Group’s consolidated financial statements is set out below:

8.1 Right of use assets

The Group’s leases include leases of offices, retail stores and residential property in Zimbabwe.

8.2       Lease liabilities

Meikles Limited Website: www.meiklesltd.com