- Revenue grew by 44% to ZWL75.6 billion
- After tax profit soared by 60%
- This was despite operating in an inflationary environment exacerbated by forex shortages, policy slippages and aggressive monetary policies
Harare- Diversified retailer, Axia Corporation Limited sailed through a volatile economic environment within Zimbabwe and in its regional branches to post a 44% revenue uptick to ZWL75.6 billion and finally, a whopping 60% increase in after-tax-profit from ZWL71 billion to ZWL52 billion and ZWL9 billion from ZWL5.7 billion respectively in the comparative 2021’s same fiscal period. Axia exploited the benefits of promotions, US dollar loans, cutting volumes growth where necessary, employing a tightened expenditure and diversification of markets to record profitability. ZWL loans were eliminated to deal with toxic repo rates and inflationary pressures.
Sometimes for corporates in business, it is not only about increasing production that matters. Sometimes, to cut unnecessary expenditures and expenses, production needs to be cut in line with the prevailing demand.
Of the ZWL75.6 billion revenue, Zimbabwean operations contributed immensely with ZWL64 billion from ZWL50 billion while the regional input saw rapid revenue growth of ZWL11 billion from ZWL2 billion mainly anchored by Zambian operations.
Earnings per share, an important profitability measure used in relating a stock's price to a company's actual earnings soared by 60% to 922.61 cents from 576.41 cents while diluted earnings per share increased by 62% from 570.82 cents to 922.61 cents.
From ZWL47.9 billion, current assets grew to ZWL59.5 billion, increasing by 24%. In total, assets grew to ZWL76 billion from ZWL60 billion against current liabilities of ZWL36 billion and total liabilities of ZWL41 billion.
This was despite the Corporate facing a confluence of calamities namely foreign currency liquidity deficit, rapid depreciation of local currencies against the ’King Dollar’, a deprived consumer spending due to impoverished earnings eroded by inflationary pressures and fiscal policy slippages both by Zimbabwean and Malawian authorities.
In Zimbabwe, consumer spending was curtailed by the toxic repo rates at 200% (now 150%) and the rapid depreciation of the local currency. Year-to-date premiums between the greenback and the Zimbabwe dollar have widened by circa 30%, a disincentive to corporates which succumbs to several taxes paid in US dollars including a 25% corporate tax, 3% AIDS levy and other IMTT taxes. Due to an unfavourable tax regime, the corporate’s tax expenses more than doubled after increasing by 111% to ZWL5.9 billion from ZWL2.8 billion.
These posed a serious threat to Distribution Group Africa Zimbabwe’s year-to-date volumes which were deprived by a grotesque 24% compared to HY2021 resulting in impoverished revenue. When corporates spend more on taxes and succumb hugely to inflationary pressures, volumes produced decline.
“The local trading environment in the first half of the financial year was characterized by the depreciation of the local currency, unstable and multiple exchange rates, high inflation and the pass-through impacts of rising global inflation together with supply disruptions arising from COVID-19 and the Russia/Ukraine conflict,” the Corporate’s chairperson, Luke Ngwerume said.
During the period, the Zimbabwe dollar depreciated by a monstrous 83% on the formal market while deficits more than doubled on both the parallel market and peer-to-peer market within six months, a record decline since the re-introduction of the Zimbabwe dollar in February 2019.
To offset detrimental losses, the Corporate cut production volumes and suspended ZWL borrowings to manage the risk on the extent of debtor balances.
The market in Malawi remained deprived of foreign currency liquidity. To counteract losses due to huge stock with a lower rate of turnover, the Corporate reduced its ordering of imported stock to cut unnecessary operating expenditures. However, that came with a price as sales volumes declined by 25%.
In Regional Zambia, volumes increased by 5% in the comparative period. The noted growth was a result of concerted efforts from the sales team. The sales mix was skewed towards high-margin products which led to improved margins. The business increased its operating profit by 8% in US dollar terms. The business continues to monitor and correct its pricing positions in response to market conditions.
At Transerv, revenue was 3% below the comparative period. However, the company is expected to improve its earnings in the second half after it increased its store network by opening two retail stores in Harare.
“Plans are underway to open at least six shops in the 2023 financial year as the business continues with the drive to lead the market and ensure that customers continue to access quality products whilst enjoying shopping convenience,” the Corporate said.
Year-to-date volumes performance for TV Home and Sales increased marginally by 3% compared to the prior year. This was on the back of a disappointing first-quarter performance which was affected by restrictive pricing pressures experienced in the first two months of the quarter. However, the company reintroduced the US dollar credit which has seen significant growth in the US dollar debtors’ book after increasing by 382% between September 2022 and December 2022 with the potential to improve revenue streams in the last half of FY2023.
“Despite the economic challenges, TV Sales and Home continues to invest in volume growth initiatives with the introduction of new product range from the group’s local manufacturing units as well as imported products.”
“Two new stores were opened in Harare during the first quarter and plans are underway to expand the retail store network which includes opening new stores in the second half of the financial year coupled with upgrades to outlooks of existing stores to improve customer experience.”
The corporate added, “ At least three new stores will be opened in the second half of the financial year with a new store concept, Bedtime Store, opening its first store while volumes are expected to improve in the second half of the financial year following the addition of a new home appliances and homeware distribution business.”
However, volumes at Restapedic, a bed manufacturing business, decreased by 20% compared to the comparative period. The decline in volumes was attributable to unsatisfactory first-quarter performance. The disappointing first-quarter performance of the retail business cited above hurt the demand for the products from Restapedic in the same period.
In addition, Restapedic experienced intermittent raw material supply gaps attributed to delays in the auction payments, which harmed the imports supply chain, resulting in a downturn in volumes during the second quarter. The business could not meet the demand in the second quarter.
The lounge suite manufacturing business also experienced raw material supply gaps attributed to delays in the auction payments and these negatively impacted the imports supply chain resulting in a 15% decline in volumes to the comparative period. Some work has been carried out on redesigning products whilst improving the range on offer. This is being done to enhance the availability of affordable products that can be sold on credit in response to market demands. The business also made progress on the export front and the first orders should be delivered in the last quarter of the financial year.
Operating expenditure was well managed, and this resulted in the business posting a decent profit. Plans have been implemented to generate foreign currency to settle foreign suppliers.
Outlook
The Corporate is expected to grow its revenue and profitability both at the local and regional scale. The corporate has a strong capital base and despite a volatile environment exacerbated by the upcoming 2023 elections in Zimbabwe, it is unlikely that the Corporate will record either a loss or a profit decline.
After opening two new stores in Harare during the first quarter, the Corporate is expecting to open at least three new stores in the second half of the financial year coupled with upgrades to the outlooks of existing stores to improve customer experience, with a new store concept, Bedtime Store, opening its first store.
As such, volumes are expected to improve in the second half of the financial year following the addition of a new home appliances and homeware distribution business.
Volumes at Restapedic, which succumbed by 20% are expected to gain momentum as the new bedding factory in Sunway City, Harare, is set to open in March 2023. However, raw materials deficit, forex deficit due to delayed auction market disbursements and electricity shortages will remain key challengers for the unit. The Corporate needs to specialise more in its export market to boost foreign currency liquidity.
Despite a 3% revenue downturn, Transerve is expected to rejuvenate in the second half benefiting mostly from branch plurality. The Company increased its store network by opening two retail stores in Harare during the period under review. However, it plans to open at least six shops in the 2023 financial year as the business continues with the drive to lead the market and ensure that customers continue to access quality products whilst enjoying shopping convenience.
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