Edgars Stores | Release of 2020 Annual report

Directors responsibility for the Integrated Annual Report

The directors of the company are responsible for the maintenance of adequate accounting records and the preparation and integrity of the annual financial statements and sustainability report in accordance with the Zimbabwe Stock Exchange (ZSE) requirements, International Financial Reporting Standards (IFRS) and the Companies and Other Business Entities Act (COBE).

Cautionary – reliance on the inflation adjusted financial statements

The directors have applied due care in applying judgements in the preparation of these financial statements. However there are material and pervasive impacts from the change in functional currency in Zimbabwe on February 2019 that resulted in non-compliance with IAS 21: Effect of Changes in Foreign Exchange Rates and initial application of IAS 29: Financial Reporting in Hyperinflationary Economies. Other impacts have been highlighted in the basis of preparation paragraph of the financial statements and the full audit opinion. This resulted in related qualifications in the audit opinion, which limits the usefulness of the financial statements.

Business overview

Notwithstanding the favourable fiscal and monetary policies maintained during the period, the economic environment remains challenging though it is improving. The improvement is mainly attributable to the introduction of the foreign currency auction system.

Operating costs are increasing with occupancy, employment and fuel costs being some of the significant costs that are rising. Management remain focused on recalibrating the business models in response to these price corrections to preserve value and build a strong balance sheet for the business.

Material disruptions stemming from COVID-19 lockdown restrictions had a significant impact on the Group’s performance, most significantly in April to May 2020 and in the last week of the 2020 trading period. The business consequently lost 1 million units in sales compared to the 2019 year. This demonstrates the significant impact on business continuity that lockdowns may have in the future. The company continues to implement and observe WHO approved COVID-19 guidelines throughout its operations to safeguard all stakeholders. With the ongoing roll out of government vaccination programmes we look forward to an easing of business disruptions caused by the pandemic.

Financial performance

Revenue was down 23% to ZWL2.1 billion and profitability down 320% to a loss of ZWL176.5 million in inflation adjusted terms. The decline in performance was due to a combination of two factors;

The business lost sales during the lockdowns as retail of clothing was not classified as an essential service. Units sold declined from 3.4million to 2.4million compared to the same period last year.
As reported last year the business closed the 2019 financial year with a lot of aged stock which when indexed had the unfortunate effect of distorting the value of cost of sales by significantly reducing the gross profit margin. In historic terms revenue and profit were up 472% and 665% to ZWL1.5 billion and ZWL394 million respectively.

Trading in foreign currency since April 2020 has allowed retail chains to improve stock assortments, which in turn has improved the number of feet in our stores. The business introduced an in-store remittance agency, where diaspora remittance beneficiaries collect their money from selected branches. The selected stores have recorded improved foreign currency sales.

Gearing increased to 0.20 in the current year (2019: 0.19). The business did not have any significant foreign liabilities as at 10 January 2021.

Retail performance

The Edgars chain recorded turnover of ZWL1.1 billion (2019: ZWL1.75 billion) out of 26 stores (2019:26). Units sold for the year were 887.7k (2019:1.39m). Total sales for the Jet chain were ZWL896 million (2019: ZWL981 million) out of 27 stores (2019:25). Units sold for the year were 1.28m (2019: 1.80m).

Manufacturing

The factory recorded turnover of ZWL285m (2019: ZWL204m). The sale of face masks and other personal protective equipment contributed significantly to this performance.

Credit management

The gross retail debtors’ book closed the period at ZWL431m compared to ZWL423m as at the end of 2019 trading period. The credit environment remained challenged by high inflation, making value preservation very difficult. As expected credit losses increased during lockdown period to 2.2% from 1.1% of the debtors’ book at 10 January 2021. The microfinance loan book, like the retail book, faced similar challenges in value preservation. The loan book closed at ZWL30.3m (2019: ZWL28.9m).

Board membership

Ms. Tjeludo Ndlovu was appointed Group Chief Executive Officer effective 1 July 2020. Tjeludo joined the group in 2013 and had served in various senior management positions in finance and operations prior to her appointment.

Bright Ndlovu was appointed Group Chief Finance Officer effective 1 June 2020. Bright joined the group in 2011 and had previously served as Financial Services Managing Director.

Ms. Happiness Vundla was appointed to the Board effective 3 December 2020. Happiness was previously with EY Chartered Accountants for over 10 years. Mrs Linda Masterson retired from the board at the end of June 2020, after serving the Group for 32 years. Dr LL Tsumba also retired in December 2020 after 14 years in the Board of Directors. We remain grateful for their wise counsel over the years.

Outlook

Management continues to remodel the business to capitalise on opportunities that arise in the very uncertain operating environment. Available foreign currency will be used to improve on merchandise ranges and assortments to grow turnover whilst at the same time escalating efforts to manage operational costs. We are retooling our manufacturing unit to enhance its capacity to supply our retail chains and cater for external customers and export sales.

We will be opening two new stores in the first half of 2021 and are looking for compelling locations to grow our footprint. Our online stores are fully operational for both Edgars and Jet, whilst Club Plus microfinance online loans uptake is growing underpinned by robust promotional activities to boost awareness.

Dividend

Regrettably, your company will not declare a dividend for the 53 weeks to 10 January 2021.

Cashflows will be channelled to growing the business.

Appreciation

I want to commend fellow board members, shareholders, management and staff for resilience and commitment in the face of the challenging environment. I look forward to continued effort from all during the coming year.

The business extends its deepest condolences to the bereaved family of one of our staff members who succumbed to Covid -19.