CHAIRMAN'S STATEMENT
Good merchandise assortments and a resurgent consumer spend assisted the Group to end the first half on a positive note. Revenue of $24.7 million (2016: $23.1 million) increased by 7% from the same period last year. Group gross profit margin of 43% reduced by 1% from the same period last year.
The Group's profit before tax for the six months was $ 0.9 million (2016: loss $0.3million). The Enterprise Resource Planning (ERP) solution has enhanced controls over credit policies. This, together with improved debt collection and policy changes in credit management has resulted in savings of $1.5million on last year. We anticipate savings of at least half this amount in the second half of the year. Other operating expenditure increased due to post go-live ERP continuing support. Other significant cost increases include factory costs and electronic payment commissions.
Retail Operations
Edgars chain: Total sales for the half year were $15.2million (2016: $14.5million). Comparable half year sales per square metre were $685 (2016: $648), an increase of 5.7%. The chain's profitability increased by 6% from 21% for the period to June 2016 to 27% for the period to June 2017. Edgars traded from 27 stores (2016: 28). Stock cover was 19 weeks (Dec 2016: 16.7 weeks).
Jet chain: Total sales for the half year were $8.7million (2016: $7.7million). Comparable half year sales per square metre were $913 (2016: $806), an increase of 13.3%. The chain's profitability remained at 16%. Jet traded from 24 stores (2016: 25). Stock cover was 14 weeks (Dec 2016: 8.7 weeks).
Credit Management
Edgars chain debtors were $16.3million (2016: $22.3million), after an allowance for credit losses of $1million (2016: $2million). Net write-offs for the period averaged 8.7% (2016: 10%) of lagged credit sales, and 1% of lagged debtors (2016: 1%). Edgars chain active accounts at June 2017 were 110 325 (June 2016: 124 324).
Jet chain debtors were at $4.5million (2016: $4.2million), after an allowance for credit losses of $0.2million (2016: $0.3million). Net write-offs for the period equated to 6.6% (2016: 6.2%) of lagged credit sales, and 1.1% of lagged debtors (2016: 1.2%). Jet chain active accounts at June 2017 were 45 584 (June 2016: 45 960).
Manufacturing
The factory made a loss for the half year of $0.3million (2016: $0.3million). The loss was a result of fabric outages caused by the shortage of foreign currency. The division is actively seeking to secure export orders.
Financing and cash flow
Net borrowings reduced by $1.8million from December 2016, closing the six months at $9.4million (December 2016: $11.2million). Of this, $8.7million were current and $0.7million were long term. We expect this level of borrowings to be maintained to year end. Gearing at 0.29, has reduced from 0.35 in December 2016.
Outlook
We will continue to improve store environments. We have recently completed the refurbishment of Edgars Stanley House in the Harare CBD and the conversion of Edgars Rusape to a Jet store is in progress.
Our microfinance business, Club Plus (Private) Limited has commenced trading albeit with caution. The business will focus on short term consumer loans.
Whilst 50% of our product is sourced locally, the prevailing foreign currency shortages will impact our product ranges, particularly for the fourth quarter. We will pursue all options to obtain key imported products for our customers and inputs for the factory while actively implementing import substitution where feasible. Cost containment and preservation of profitability continues to be foremost in our minds.
The biggest obstacle to import substitution is limited allocation of foreign currency to local suppliers for fabric and trim imports. This should be of national concern. Given the gravity and intensity of the unfolding cash shortages and foreign currency scarcity, management is working tirelessly to avoid an inadequately stocked fourth quarter. Provided we succeed, management is confident that the business will meet the 2017 profit forecast.
Dividend
The Board has decided not to declare a dividend this half year.
Appreciation
I am grateful to board colleagues, management and staff for their dedication. I am also grateful to our customers for their loyalty and our landlords, bankers and suppliers for their continued support.
TN Sibanda
Chairman