Interim Results

Meikles Africa Ld 22 November 1999 MEIKLES AFRICA LIMITED Interim results for the six months ended 30 September 1999 Meikles Africa Limited (' Meikles Africa'), the Southern African based hotel and retail group, which floated on the Zimbabwe and London Stock Exchanges in 1996, announces a strong operating performance for the six months ended 30 September 1999. * Group turnover up 74% to Z$2,954m (1998: Z$1,701m) * Operating profit up 119% to Z$358m (1998: Z$164m) * Strong operating cash flow per share of 202 cents, up 80% * IIMR headline earnings per share at 34 cents shows effect of non- cash movements, particularly the reduction in currency exchange gains * Interim dividend up 75% to 70 cents (1998: 40 cents) * Acquisition strategy significantly progressed * Balance sheet remains very strong Chris Parvin, Chief Executive, commented: 'We are pleased to report an excellent operating performance despite the persistent difficult economic conditions. Our balance sheet remains particularly strong and the acquisition of the Cape Grace Hotel in Cape Town marks an important strategic step for the Group, as we embark on our strategy of regional expansion. We continue to seek growth opportunities in the local market in our core businesses and in complementary business areas.' 22 November 1999 Enquiries: Meikles Africa Tel: + 263 4 252 064 Chris Parvin, Chief Executive Charles Golding, Finance Director College Hill - London Tel: + 44 171 457 2020 Corinna Dorward College Hill - South Africa Tel: + 27 11 447 3030 Kim Paton CHAIRMAN'S STATEMENT INTRODUCTION The economic and social problems facing Zimbabwe have persisted in the last six months. Escalating inflation, high interest rates, a poor investment climate and worsening unemployment have begun to impact negatively on consumer spending and costs, although in the reporting period little effect is evident in the Group's results. RESULTS In spite of the difficult environment, the Group has produced strong operating results at the half-year mark. Turnover was 74% up on the first 6 months of the last financial year and operating profit increased by 119% over the same period. Turnover indicates a gain in market share in the two retail divisions particularly in the second quarter. Expenses have been contained and stockturns have improved. Operating cash flow at Z$309 million shows growth of Z$137 million over the same period last year. The Board has recommended an interim dividend of 70 cents per share (1998 interim: 40 cents per share) based on a cover of 1.9 times earnings, excluding the decreased value of exchange gains and quoted investments. At attributable profit level, there are two major items which reflect a negative comparison against the previous year's interim results. Firstly, currency exchange gains are Z$774 million less than last year, and secondly, the value of the Group's quoted South African investments is Z$194 million lower than at the end of March 1999, although only Z$37 million lower than at the end of September, 1998. Neither of these items have any bearing on cashflow. Both these items were brought to account in the Income Statement at 31st March 1999. Fluctuations in the value of these assets must be expected as the Company retains a US$41 million cash deposit and the Zimbabwe dollar exchange rate is unlikely to remain constant. In addition, the South African investments are expected to recover strongly in the medium term. HOTELS For the 6 months under review, Meikles Hotel and the Group's 50% share of the Victoria Falls Hotel, produced an operating profit of Z$119 million (1998 Z$66 million including two months income from the Victoria Falls Hotel). Meikles Hotel revenue grew by 56% with a slight growth in room occupancy. At the Victoria Falls Hotel, revenue was 70% up on the same period last year, although room occupancy was affected by the coming on stream of nearly 300 extra beds in the Victoria Falls town and very modest growth in tourist arrivals since the beginning of 1999. Both the Meikles Hotel and the Victoria Falls Hotel continue to win international awards for excellence. The acquisition of 50% of the business of the Cape Grace Hotel has been finalised at a cost of R32 million and all necessary approvals from the relevant authorities have been received. The Cape Grace is a luxury hotel in a prime position on Cape Town's Victoria and Alfred Waterfront. It is a member of the Small Luxury Hotels of the World and has won several prestigious awards. The Hotel Division will be accounting for this investment from 1st October, 1999. The Group also has the right to acquire 50% of the property of the hotel and the Reserve Bank have approved the remittance of a further US$7.5 million in this regard. The investment is expected to realise a net contribution to profits well in excess of the return currently being earned on the Group's US$ funds. It is anticipated that substantial marketing benefits will arise from the association of the Cape Grace, Victoria Falls Hotel and Meikles Hotel. RETAIL Sales and operating profits in the Retail Division were up 73% and 223% respectively on the same period in the prior year. The Department Stores experienced strong demand throughout the period, particularly in the second quarter which benefited from the public distribution and sale of Old Mutual shares. The gross margin has improved significantly, as have stockturns, while a favourable ratio of expenditure to sales has been achieved. Clicks and Diskom turnover increased by 102% over the first half of last year. The Club Card credit scheme has been highly successful, and a similar concept is to be introduced into the Diskom Chain. Stockturns have improved substantially. Credit operations throughout the Division are tightly controlled from a central location. The Division has now disposed of its Flame Diner takeout chain at no loss. All that remains of the Food Franchise business excluding our instore outlets are two Blacksteer Restaurants for which we will continue to seek buyers. TM SUPERMARKETS Turnover was 71% up and operating profit grew by 110% on the same period last year. Economic hardships have tended to shift consumer buying patterns, but effective merchandise selection and aggressive price oriented promotional activity have improved gross margin. Improved inventory management, coupled with increased interest rates, is reflected in net interest income of Z$35.5 million (1998: Z$7.0 million). YEAR 2000 COMPLIANCE The Group's plans to test all systems and acquire new computer hardware where appropriate have been successfully carried through. No material operational difficulties, which may arise from the Group's own non-compliance are anticipated, and the Group has contingency plans in the event of non-compliance by critical service providers. OUTLOOK Rapidly increasing costs and the effects of an overvalued currency are beginning to influence trading, particularly in the Hotel Division. On the positive side, the retail divisions are showing real growth and the Group continues to expand its core businesses. The acquisition of the Cape Grace Hotel is an initial step in realising Meikles Africa's aim of acquiring leading regional hotels. The Group will continue to look for opportunities to invest its US dollars in activities which have a strong hard currency income stream and consistent profit growth. In Zimbabwe, two new Clicks Stores and four new TM supermarkets are currently under construction. Numerous sites have been identified for development and negotiations are proceeding to bring these opportunities to fruition. Shareholders will have noted the cautionary announcements concerning the negotiations with Kingdom Financial Holdings Limited. The objective is to develop financial services with the aim of delivering convenient and easy banking for our many customers. Negotiations are continuing and shareholders will be kept informed of developments. Good rains have been forecast and a normal agricultural season is expected with commodity prices modestly firmer. The underlying weaknesses in the economy are well known but notwithstanding these, your Group is expected to produce growth in operating profit and dividends. Meikles Africa Limited Consolidated Income Statement for the six months ended 30 September 1999 Unaudited Unaudited Audited 6 months 6 months to Year to 30 ended Notes 30 September 31 March September 1998 1999 1999 Z$000 Z$000 Z$000 Turnover 2,954,435 1,701,119 4,193,467 Cost of sales (2,126,316) (1,252,232) (3,021,749) Gross profit 828,119 448,887 1,171,718 Employee costs (254,445) (155,526) (350,522) Occupancy costs (74,468) (40,458) (105,787) Other operating costs (246,732) (143,285) (359,783) Other income 105,922 54,035 161,668 Operating profit 358,396 163,653 517,294 Net interest 2 (71,393) (19,812) (89,968) Profit after interest 287,003 143,841 427,326 Exchange (6,183) 767,968 973,936 (losses)/gains Change in valuation of quoted investments (193,557) 172,046 327,698 Profit before taxation 87,263 1,083,855 1,728,960 Taxation 3 (12,555) (93,023) (193,440) Profit after taxation 74,708 990,832 1,535,520 Minority interest (32,475) (12,064) (37,860) Net profit attributable to 42,233 978,768 1,497,660 shareholders Retained earnings brought forward 1,753,639 470,032 470,032 Dividends (107,027) (61,158) (214,053) Retained earnings carried forward 1,688,845 1,387,642 1,753,639 Earnings per share - basic (cents) 4 28 640 980 IIMR Headline earnings per share (cents) 4 34 643 990 Meikles Africa Limited Consolidated balance sheet at 30 September 1999 Unaudited Unaudited Audited 30 30 31 September September March Notes 1999 1998 1999 Z$000 Z$000 Z$000 ASSETS Non-current assets Property, plant and 697,666 590,400 671,311 equipment Investments 5 366,994 404,405 560,551 Goodwill 408,010 434,040 417,779 Long term debtors 171,531 99,277 166,762 1,644,201 1,528,122 1,816,403 Current assets Stocks 701,773 416,187 513,622 Debtors and prepayments 425,555 350,326 372,071 Cash and cash equivalents 2,048,373 1,643,870 1,962,236 3,175,701 2,410,383 2,847,929 Total assets 4,819,902 3,938,505 4,664,332 EQUITY AND LIABILITIES Capital and reserves Equity capital 15,289 15,289 15,289 Non-distributable reserves 1,048,368 1,048,368 1,048,368 Retained earnings 1,688,845 1,387,642 1,753,639 2,752,502 2,451,299 2,817,296 Minority interest 6 28,080 12,815 19,961 Non-current liabilities Interest bearing borrowings 751,028 648,328 574,260 Deferred tax 253,980 237,290 297,574 Other financial liabilities 29,628 6,557 7,331 1,034,636 892,175 879,165 Current liabilities Creditors 785,336 432,125 672,602 Interest bearing borrowings 32,047 41,639 62,705 Proposed dividend 107,027 61,158 152,895 Other financial liabilities 80,274 47,294 59,708 1,004,684 582,216 947,910 Total equity and liabilities 4,819,902 3,938,505 4,664,332 Meikles Africa Limited Consolidated cashflow statement for the six months ended 30 September 1999 Unaudited Unaudited Audited 6 months 6 months Year to to ended Notes 30 30 31 September September March 1999 1998 1999 Z$000 Z$000 Z$000 Cash flows from operating activities Operating cash flow before working capital changes 7 406,507 193,990 591,240 Increase in stocks (188,151) (12,770) (110,205) Decrease / (Increase) in non- interest bearing debtors 35,346 (16,820) (18,060) Increase in creditors 55,414 7,454 240,590 Operating cash flow 309,116 171,854 703,565 Income tax paid (18,350) (10,149) (47,135) Net cash from operating 290,766 161,705 656,430 activities Cash flows from investing activities Purchase of 50% joint venture in Victoria Falls Hotel - (377,306) (377,306) Purchase of property, plant and equipment - replacement (55,220) (71,473) (144,847) Purchase of property, plant and equipment - expansion (13,631) (10,544) (48,263) Proceeds from disposal of property, plant and equipment 4,156 1,415 3,924 Dividends received - - 5,209 Increase in interest-bearing debtors (93,599) (76,079) (164,069) Interest received 84,336 45,154 114,077 Net cash used in investing activities (73,958) (488,833) (611,275) Cash flows from financing activities Proceeds from interest bearing borrowings 188,394 516,807 496,117 Repayments of interest bearing borrowings (42,284) - (32,312) Interest paid (98,410) (72,307) (204,045) Dividends paid - Ordinary shareholders (152,895) (53,513) (114,671) - Minority interest (19,293) (9,214) (18,316) Net cash (used in) / from financing activities (124,488) 381,773 126,773 Net effect of exchange rate changes on cash and cash equivalents (6,183) 767,968 969,051 Net increase in cash and cash equivalents 86,137 822,613 1,140,979 Cash and cash equivalents at 31 March 1999 1,962,236 821,257 821,257 Cash and cash equivalents at 30 September 1999 2,048,373 1,643,870 1,962,236 Meikles Africa Limited Notes to the financial statements 1. Accounting policies The accounting policies are the same as those used in preparing the 31 March 1999 Annual Financial statements and no adjustment has been made for the effects of hyperinflation. Unaudited Unaudited Audited 6 months to 6 months to Year 30 30 ended September September 31 March 1999 1998 1999 Z$000 Z$000 Z$000 2. Net Interest Interest receivable: Related parties - 6,334 - Third parties 84,336 38,820 114,077 84,336 45,154 114,077 Interest payable: Related parties (1,545) (979) (3,000) Long term borrowings (152,345) (103,532) (195,459) Less: Amount capitalised - 40,000 - Overdrafts and short term borrowings (1,839) (455) (5,586) (155,729) (64,966) (204,045) (71,393) (19,812) (89,968) 3. Taxation Income tax - current 49,644 22,328 56,110 Income tax - deferred (4,475) 36,474 65,752 Capital gains tax - deferred (39,119) 33,922 65,131 Withholding tax on interest 6,505 299 6,447 12,555 93,023 193,440 4. Earnings per share Basic earnings per share have been calculated by dividing the net profit for the period attributable to shareholders by the number of shares in issue. IIMR Headline earnings per share Net profit for the period attributable to shareholders 42,233 978,768 1,497,660 Amortisation of goodwill 9,769 3,800 16,107 52,002 982,568 1,513,767 Number of shares in issue 152,895,305 152,895,305 152,895,305 Meikles Africa Limited Notes to the financial statements continued Unaudited Unaudited Audited 30 30 31 September September March 1999 1998 1999 Z$000 Z$000 Z$000 5. Investments Cost 13,706 13,706 13,706 Revaluation surplus 353,288 390,699 546,845 Closing net book amount 366,994 404,405 560,551 6. Minority interest At 31 March 1999 19,961 10,496 10,496 Share of net profit of subsidiary 32,475 11,421 37,860 Share of dividends paid and proposed (24,356) (9,102) (28,395) At 30 September 1999 28,080 12,815 19,961 Unaudited Unaudited Audited 6 months to 6 months to Year 30 30 ended September September 31 March 1999 1998 1999 Z$000 Z$000 Z$000 7. Cash flows from operating activities Profit before taxation 87,263 1,083,855 1,728,960 Adjustments for: Amortisation of goodwill 9,769 3,800 16,107 Depreciation 38,400 27,494 55,635 Net interest 71,393 19,812 89,968 Exchange losses / (gains) 6,183 (767,968) (973,936) Change in valuation of 193,557 (172,046) (327,698) quoted investments Dividends received - - (5,209) Realised exchange gains - - 4,885 Profit on disposal of (58) (957) 2,528 property, plant and equipment 406,507 193,990 591,240 8. Segmental Information By industry segment: Turnover Hotel 300,920 149,727 449,951 Supermarkets 2,133,895 1,251,436 2,937,224 Retail 519,620 299,956 806,292 Corporate and other - - - 2,954,435 1,701,119 4,193,467 Operating profit Hotel 119,619 66,311 210,284 Supermarkets 153,270 73,039 187,261 Retail 90,839 28,121 127,412 Corporate and other (5,332) (3,818) (7,663) 358,396 163,653 517,294 Total assets Hotel 985,925 411,690 946,118 Supermarkets 801,314 399,909 648,589 Retail 1,143,607 749,809 829,027 Corporate and other 1,889,056 2,377,097 2,240,598 4,819,902 3,938,505 4,664,332 Meikles Africa Limited Notes to the financial statements continued 9. Foreign exchange rates The principal foreign exchange rates used in the financial statements are as follows: (shown as the Zimbabwe dollar equivalent of one foreign currency unit). Average transaction rate Balance sheet rate 30 30 31 30 30 31 September September March September September March 1999 1998 1999 1999 1998 1999 Britain 61,14 33,74 50,68 62,39 57,50 61,45 United States 38,04 20,41 31,72 37,95 33,71 38,15 Germany 20,53 11,53 17,69 20,66 20,14 20,93 Switzerland 25,09 15,29 20,16 25,22 24,31 25,64 Japan 0,33 0,16 0,28 0,36 0,25 0,31 South Africa 6,26 3,60 5,25 6,35 5,79 6,17 Meikles Africa Limited Financial Highlights 6 months to 12 months 30 September to 31 March 1999 1998 1999 Group turnover (Z$m) 2,954 1,701 4,193 Group operating profit (Z$m) 358 164 517 Operating cashflow per share 202 112 460 (Zcents) Operating earnings per share 131 57 191 (Zcents)* Headline earnings per share 34 643 990 (Zcents) Dividends (Zcents) 70 40 140 Dividend cover (times)* 1.9 1.4 1.4 Capital expenditure (Z$m) 69 82 193 *: excluding exchange gains and changes in the valuation of quoted investments (net of tax) Dividend announcement On the 18th November 1999, the Board approved an interim dividend Number 60 of 70 cents per share on 152,895,305 shares payable to members registered in the books of the company at the close of business on 3rd December, 1999. The Transfer Books and Register of Members will be closed from 4th December, 1999 to 12th December, 1999. Dividend cheques will be mailed to shareholders on or about 13th December 1999. The dividends payable to non-resident shareholders will be paid in accordance with Exchange Control Regulations. Shareholders' withholding tax will be deducted where applicable. By order of the Board A.P. LANE-MITCHELL Company Secretary All current financial, operational and structural information on Meikles Africa Limited can be obtained as changes in these areas occur by visiting Meikles Africa's website at: http://www.meiklesafrica.com

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