EDGR.zw | 2015 annual report

The Group performed relatively well given the sharp decline in the operating environment and economy as a whole. However, the Group was not entirely spared, and saw a marked reduction in consumer appetite and confidence reflecting in turnover, which trend became more pronounced in the fourth quarter following retrenchments. Delayed payment of workers resulted in Christmas trading being extremely subdued and sales in that quarter were 23% below prior year.

Inclusive of the gain on revaluation of assets, Total Comprehensive Income was 12% down on last year from a 13% decline in top line; while Profit for the Period reduced to $4million.

Retail Operations
The decline in turnover was mainly attributable to a drop in Edgars Chain sales which were down 24% from 2014. This was from the high base of extended credit having been launched in the previous year and so we expected reduced turnover. Even so, the Chain performed below expectations.

The Jet Chain’s turnover increased by 23% to $19.1million (2014: $15.6million), contributing 31% to consolidated Group turnover (2014: 22%). Profitability in the Chain also improved to 7.5% of sales (2014: 4.3%), on the back of credit and the benefits of scale. Given the macro economic environment, the discount chain is the natural choice for cash strapped customers.

Due to the poor Christmas trading, both chains ended the year overstocked, which is being addressed and has improved since year end.

Credit Management
Despite the deterioration in disposable incomes, customers have been paying, albeit not as timely as in the past. Total gross write offs for the year amounted to $2.2million, which equates to 4.1% of lagged credit sales and 0.6% of lagged debtors (2014: 1.9% and 0.4% respectively). At year end total trade debtors were $31.1million net of provisions for doubtful debt of 6% (2014: 2%).

Cost reduction initiatives in managing the debtors’ book and collections are intensifying.

Manufacturing
As a result of being highly dependent on group retail, the factory’s own production sales decreased by 10%. It is through exports, where volumes are larger, that the factory will hopefully realise meaningful productivity. Unfortunately, the combination of a high cost base and the strengthening United States Dollar lead to exports being uncompetitively priced. The unit is continuing with its productivity improvement exercise and measures to right size are being implemented. Exports, at marginal profitability, are being pursued, in line with national goals.

Financing and cash flow
Through conservative cash management, borrowings were reduced from $20.3million to $18million. Resultantly, gearing reduced to 66% (2014: 100%).

Capital expenditure
Spend to date was in respect of:

Our priority remains the IT upgrade project which is now at an advanced stage. We have already identified process improvement opportunities through the project activities to date, and foresee significant cost savings post implementation.

Outlook
We do not forecast an improvement in the short term, but are gearing the organisation for a leaner, and more productive future, by remaining committed to reducing costs and increasing productivity. There will be some business reorganisation costs in achieving this which will impact 2016 profit but ensure that we are well placed for 2017 and beyond. Focus is on continuing to better provide customers with the value they are seeking, improving product pipeline logistics, merchandise assortments and differentiation between the two retail chains.

Dividend
In the current context, your company will not declare a dividend.

Appreciation
I am grateful to board colleagues, management and staff for their dedication, our customers for their loyalty and our landlords, bankers and suppliers for their continued support.

TN Sibanda
Chairman