Directors responsibility for the Integrated Annual Report
The Directors of Edgars Stores Limited are responsible for the preparation and fair presentation of the Group's consolidated financial statements. The audited consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), in the manner required by the Companies and Other Business Entities Act (Chapter 24:31) and the Zimbabwe Stock Exchange listing requirements.
The principal accounting policies of the Group are consistent with those applied in the previous annual financial statements.
Cautionary - reliance on these hyperinflation adjusted financial statements
The Directors would like to advise users to exercise caution on their use of these financial statements due to the material and pervasive impact of the technicalities brought about by the change in functional currency in Zimbabwe at the beginning of 2019 and its consequent impact on the usefulness of the financial statements for subsequent reporting periods. This was further compounded by the adoption of International Accounting Standard (IAS) 29 'Financial Reporting in Hyperinflationary Economies'.
Whilst the Directors have exercised reasonable due care in applying judgements that were deemed to be appropriate in the preparation of these financial statements, certain distortions may arise due to the various economic factors that may affect the relevance and reliability of the financial information presented in economies such as Zimbabwe, that are experiencing hyperinflation.
Operating environment and overview
Throughout the financial reporting period of 2021, the operating environment remained volatile. The Group continued to trade under challenging socio-economic conditions and effects of various regulatory pronouncements. Although relatively stable over the reporting period under review, inflation and exchange rate movements continue to have a significant impact on the Group’s operations.
Operating costs are increasing, with occupancy, employment, intermediated transaction tax and fuel costs being some of the significant costs that continue to rise. Management remains focused on recalibrating the business models in response to these price corrections to preserve value and build a strong balance sheet for the business.
Financial performance (based on inflation-adjusted results)
Notwithstanding the challenges in the operating environment, the Group managed to close 2021 with an improved performance over the year. The Group reported Revenue of ZWL6.9billion which is 82.5% up from that achieved in 2020 of ZWL3.7billion. Profit before tax of ZWL590million was a significant improvement from the prior period loss of ZWL290million. This is a demonstration of the various initiatives implemented by Management to ensure fresher stock was available in our stores. The Group achieved a basic earnings per share of 97.49 cents 2020: (78.89 cents).
Total Group units sold increased by 4.1% from 2.4million to 2.5million compared to the same period last year. 2021 saw our Manufacturing concern, Carousel, recording its first export sale to Botswana, bearing testament of Management's initiatives to continuously explore alternative markets.
Trading in foreign currency since April 2020 has allowed our retail chains to improve stock assortments, which in turn has increased traffic in our stores. While a sizable portion of our cash sales are in foreign currency,we believe that this proportion can be increased through favourable and consistent application of regulatory policies around trading in foreign currency.
Gearing increased to 0.5 in the current year from a prior year of 0.3.Funding was channelled towards growing the debtors' book as well as store expansion initiatives. At the end of the reporting period, the company had USD241k foreign liabilities which it will be able to service from existing resources.
Retail performance
Total retail merchandise revenue amounted to ZWL5.56billion representing a 70.1% increase from prior year. The split between credit and cash sales was 61.2% (2020: 43.5 %) and 38.8 %( 2020: 56.5 %).
The Edgars chain recorded turnover of ZWL3billion up 73.7% from the prior year of ZW1.7billion, at 956k, units sold were up 8.2% from 887.7k in the comparative period. The split between credit and cash sales was 69.1% (2020: 53 %) and 31.2% (2020: 47 .1%). We opened a new store in Avondale in October 2021. Stock covers closed at 20.5 weeks(2020:19.2weeks).
Total sales for the Jet chain were ZWL2.5billion up 78.6% from ZWL1.4billion achieved in the comparative period. The split between credit and cash sales was 45.5% (2020: 28.1 %) and 54.5 %( 2020: 71.9%). Total Units sold for the period were up 13% from 1.28m to 1.48m. The Chain increased its store count to 31 stores from 27 stores in the comparative period. Stock covers closed at 16.2 weeks (2020:16.9 weeks).
Financial services
The gross retail debtors' book closed the period at ZWL1.54 billion up 257.2% from ZWL431million in the comparative period. Active account growth increased to 128k from 120k, this 6.5% growth is attributed to various account drive initiatives. The asset quality remains solid with 84.6%( 2020: 83.3%) of our retail debtors' book in current status. Expected credit losses (ECLs) as at end of December 2021 were 2.3% of the book compared to 1.1% as at end of December 2020, although this shows Management's prudent application of the related credit loss accounting standards, the 'deterioration' is below the industry benchmark of 5.0%.
Club Plus Microfinance
The loan book closed at ZWL151 million (2020: ZWL30.3m) representing a 399% increase from prior year. Asset quality remains positive with over 80% of the book being in current. Improved efficiencies in loan approval and disbursement processes have resulted in increased turnaround. We have seen an increase on the uptake of loan applications through our online platforms i.e. the mobile app, this has provided our customers with added convenience.
Carousel Manufacturing
The Manufacturing Division recorded turnover of ZWL334million up 127.2% over prior year. However total units sold were down 42.1% to 165k (2020:286k). Demand in prior period was largely driven by Covid - 19 PPE such as the manufacturing of masks. Management has been actively seeking alternative markets, which has seen the division securing and delivering on its first export sales order in the period. Investment in various re-tooling and machinists training is ongoing which will see the division expanding on its product offering as well as improved efficiencies.
Effect of COVID-19
Material disruptions stemming from Covid-19 lockdown restrictions had a significant impact on the Group's performance, most significantly in January and February 2021 where the business lost over 7 trading weeks of sales. In the other limited lockdown months from March to August 2021 (which includes our peak winter season) we effectively traded at 60% of our normal trading hours.
Covid -19 brought about supply chain challenges such as shortages of shipping containers and port space. This had a resultant negative effect of delaying shipment and arrival of imported merchandise and an increase in shipping costs. There was also an impact on production and delivery of local merchandise due to delays in receiving imported fabrics and trims.
The effect of Covid-19 brought about new ways of doing business which has become the 'new norm'. This is characterised by improved engagement with customers across social media platforms and has seen the setting up of online stores and convenient payment platforms.
The Group continues to implement and observe WHO approved Covid-19 guidelines throughout its operations to safeguard all stakeholders. Implementation of an effective staff vaccination program has seen over 97% of our staff being vaccinated. This, along with the various vaccination programs implemented by the Government will go a long way in ensuring the safety of our staff and our customers.
Board membership
Ms Happiness Vundla was appointed Group Chief Finance Officer effective 01 September 2021 after Mr Bright Ndlovu left the Group.
Mr Vusumuzi Mpofu took early retirement at the end of January 2022 after serving the Group for 21 years.
Mr Christo Claassen, a seasoned retail specialist, joined the Board with effect from 1 March 2022.
Outlook
Management continues to remodel the business to capitalise on opportunities that arise in the very uncertain operating environment.Cost containment remains a focus area so as to ensure long term viability of the business.
The Group seeks to expand its geographic footprint through the opening of new stores in strategic locations. Smart merchandise procurement remains a key focus area to ensure that target margins are achieved without compromising the merchandise quality. We will continue to transform our customer experience through updating our stores to world class standards, offering widened merchandise ranges at affordable prices and flexible credit terms.
Dividend
Regrettably, your Group will not declare a dividend for the 52 weeks to 09 January 2022. The position will be reviewed having assessed the performance in the current year.
Appreciation
I wish 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.
T N SIBANDA
CHAIRMAN
25 July 2022
Edgars Stores 2021 Annual Report