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 23^rd consecutive year. The Victoria Falls Hotel was voted the ‘4^th 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