Edgars HY2023 Financial Results

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May 10, 2024

Chairman’s report

Directors responsibility for the Integrated Annual Report

The Directors of Edgars Stores Limited are responsible for the preparation and fair presentation of the Group’s consolidated financial statements. The preliminary unaudited financial information incorporate full disclosure in line with IFRS Accounting Standards and best practice.

Edgars migrated its listing from the Zimbabwe Stock Exchange (ZSE) to the Victoria Falls Stock Exchange (VFEX) effective 5th of April 2024.

Stakeholders should take note that these abridged financial statements for the financial year 2023 will be the last set published in ZWL. The 2024 financial statements going forward will be presented in United States Dollars (USD), which is the functional currency of the Group, and also in line with the reporting requirements of Victoria Falls Stock Exchange (VFEX).

The principal accounting policies of the Group are consistent with those applied in prior years.

Cautionary – reliance on hyperinflation adjusted financial statements

The Directors would like to advise users to exercise caution on their use of these financial statements due to the material and pervasive impact of the technicalities brought about by the change in functional currency in Zimbabwe at the beginning of 2019 and its consequent impact on the usefulness of the financial statements for subsequent reporting periods. This was further compounded by the adoption of International Accounting Standard (IAS) 29 ‘Financial Reporting in Hyperinflationary Economies’.

Whilst the Directors have exercised reasonable due care in applying judgements deemed appropriate in the preparation of these financial statements, certain distortions may arise due to the various economic factors that may affect the relevance and reliability of the financial information presented in economies such as Zimbabwe, that are experiencing hyperinflation.

Operating environment and overview
Throughout the financial reporting period ended 7 January 2024, the operating environment was characterised by exchange rate volatility and incessant inflationary pressures. Liquidity challenges in both the local and foreign currencies persisted throughout the year coupled with elevated interest rates, although the cost of borrowing in ZWL declined marginally towards the end of the period. Sustained inflationary pressures impacted negatively on disposable incomes resulting in subdued volume sales during the period, compared to prior year.

The period witnessed an increased level of dollarisation in the economy. This, further buttressed by a formal confirmation by the Government that the multi-currency regime will be maintained to December 2030, has improved the ease of restocking the Group’s manufacturing entity and Retail chains. The business responded by rolling out USD credit to assist customers in better planning their financial commitments.

Operating costs in real terms were maintained at a level comparable to the prior year. Occupancy, employment, and fuel costs remained key drivers to the Group’s operating expenses. During the period, management focused on realigning the business model to the realities of trading in a pre-dominantly USD environment, with a specific focus on dealing with pricing volatilities in order to preserve the business’ balance sheet.

Financial performance (based on inflation-adjusted results)
Notwithstanding the challenges in the operating environment, the Group managed to close the period with an improved performance over the year. The Group reported Revenue of ZWL294.0 billion which is 70.3% up from that achieved in 2023 of ZWL172.6 billion. The growth in real terms is attributed to margin improvements due to better procurement, ongoing cost management as well as other initiatives implemented by management to ensure fresher and high-quality stock availability in our stores, regardless of the supply chain challenges. Profit before tax of ZWL41.3 billion was an increase of 349.8% from the prior period of ZWL9.2 billion. Increase in profit for the year was indicative of correct pricing and focussed cost management. Finance costs for the period were ZWL$20.3 billion, a 2.3% reduction from prior year, reflecting reduction in the lending rates to 100% as well as the switch to USD borrowing which attracted a lower cost. This interest rate benefit was passed onto our customers as reflected in lower price points of merchandise. The Group achieved basic earnings per share of 5 713 cents (2023: 163 cents).

Total Group units sold declined by 10.8% from 2.85 million to 2.55 million compared to the same period last year.

Trading in foreign currency since April 2020 has allowed our retail chains to improve stock assortments, which in turn has increased traffic in our stores. While a sizable portion of our cash sales are in foreign currency, we believe that this proportion can be increased through favourable and consistent application of regulatory policies around trading in foreign currency.

Gearing has been maintained at 0.57 to prior year. Funding raised was channelled towards growing the debtors’ book as well as store expansion initiatives.

Retail performance
Total retail merchandise revenue amounted to ZWL244.8 billion representing a 94.8% increase from prior year. The split between credit and cash sales for the ZWL was 6.9% (2023: 48.8%) and 93.1% (2023: 51.2%) while the USD sales had credit sales contribution of 73% (2023: 71%) and cash sales of 27% (2023: 29.0%).

The Edgars chain recorded turnover of ZWL139.3 billion, up 98.5% from prior year of ZWL70.2 billion, and the 1.36m units sold were down 12.99% from 1.58m in the comparative period. The split between credit and cash sales for ZWL was 8.7% (2023: 54.5%) and 91.3% (2023: 45.5%) while the USD sales had credit sales of 73% (2023: 71.6%) and cash sales of 27% (2023: 28.4%).

Total sales for the Jet chain were ZWL116.5 billion, up 107.34% from ZWL56.2 billion achieved in the comparative period. The split between credit and cash sales for ZWL was 4.8% (2023: 43.1 %) and 95.2% (2023: 56.9 %) while the USD sales had credit sales of 73% (2023: 70.3%) and cash sales of 27% (2023: 29.7%). Total units sold for the period were down 13.03% from 1.16m to 1.01m. The Chain increased its store count to 36 stores from 31 stores in the comparative period.

Edgars Stores Limited won the Superbrand 2023 award in the Clothing and Fashion Sector categories in the annual competition run by the Marketers Association of Zimbabwe, whilst Jet Stores won the 1st Runner up position. The Group gave back to the community through various CSR initiatives through its different divisions. This included Cancer Association of Zimbabwe, Breast cancer Awareness campaign, Jairos Jiri shoes donation and Kidzcan clothing donations for children living with cancer.

Financial services
The USD retail debtors’ book closed the period at USD$12.6 million, representing a 100 % growth on prior year balance of USD$6.3 million, whilst the ZWL retail debtors’ book closed the period at ZWL$1.4 billion, a 43.8% decline on the prior year of ZWL$2.4 billion. The skew reflects the growing dollarisation in the market and the impact of high ZWL interest rates in discouraging borrowings in local currency. Active USD accounts increased to 91K, up from 64K in prior year. The increase came on the back of new accounts opening initiatives as well as account conversion initiatives employed in the last quarter of 2023. The asset quality remained strong at 80.1% for the USD book and at 76.8% for the ZWL book. Expected credit losses (ECLs) as at 7 January 2024 were 3.2% of the book compared to 4.0% as at 8 January 2023, which is within the acceptable industry benchmark of 5.0%.

Club Plus Microfinance
The USD loan book closed the year at USD 1,1 million, a growth by 17% compared to the prior year’s USD0.95 million. The business focus for the period was to grow the USD loan book focusing on less risky loan products. Asset quality remains positive with 83.6% of the USD book being in current. Improved efficiencies in loan approval and disbursement processes have resulted in improved turnaround time for customers.

Carousel Manufacturing
The Manufacturing Division recorded a turnover of ZWL17.7bn, up 169.9% on prior year (98.6% of revenue was in USD). Total units sold were up 37% to 193.5k (2023: 141.2k). The unit during the period was refocussed to become a wholly in-house supplier for the Group’s Retail chains, in the process improving the Group’s control of its supply chain. Revenue was boosted by the improved order book from the chains. Recruitment of skilled machinists led to increased production efficiencies. The manufacturing entity plans to increase its production capacity and output in 2024 on the back of better fabric restocking, and expansion capital expenditure in cutting room solutions and the general retooling of the factory.

Outlook
Management will continue to remodel the business to capitalise on opportunities that arise in the operating environment. In particular, management will focus on retooling Carousel to underpin increased production and improve operational efficiencies in order to better support the Retail chains. In addition, cost containment efforts will be an area of key focus in order to underpin the long-term viability of the business.

The Group seeks to expand its geographic footprint through the opening of new stores in strategic locations. In fulfilment of our strategic thrust, we opened a new store at Ascot Shopping Centre in Bulawayo in March 2024. Smart merchandise procurement and optimal inventory planning remain key focus areas to ensure that targeted margins are achieved without compromising the merchandise quality. Management aims to continue improving customer experiences through updating our stores to world class standards and offering broader merchandise ranges at affordable prices and flexible credit terms.

The increased dollarisation in the economy is projected to assist the business through improved access to foreign currency through domestic sales to cover import requirements, which we believe will assist with improved stock availability in the shops.

In view of the subdued agricultural output in current year, the country will increase food imports and will be impacted by food inflation. This headwind will bring disposable incomes under additional strain and reduce USD liquidity in the local financial market. In order to mitigate against the impact of sales volume declines on profitability, the Group will focus on enhancing cost-competitiveness through improving value chain efficiencies. The Group will also re-launch its Express shops, targeting the low-income segment of the economy, where it will sell for cash.

Dividend
Regrettably, the Company will not declare a dividend for the 52 weeks to 7 January 2024. The position will be reviewed in future.

Appreciation
I wish to record my appreciation to Management and staff for their continued efforts in sustaining the business in a difficult operating environment. I also thank my fellow directors for their wise counsel and our customers, suppliers, and stakeholders for their ongoing support.

T N SIBANDA
CHAIRMAN
10 May 2024

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