Axia bemoans volatile operating environment

Large retailers are buying foreign currency from the black market


LISTED Axia Corporation Limited has bemoaned the excruciating trading environment punctuated by runaway inflation, foreign currency scarcity and ballooned finance costs, despite posting positive results during the year ended June 30.

“The operating environment was volatile and trading conditions remained extremely challenging during the year, characterised by shortage of foreign currency, liquidity constraints, increased finance costs as well as inflationary pressures continued across the board with respect to both inputs and operating expenditure, particularly in the latter part of the year,” chairman Luke Ngwerume said in a statement accompanying the group’s financials yesterday.

He said the increase in prices of goods and services was largely driven by the adverse movement in foreign exchange rates, which affected cost of doing business as pricing by most suppliers of goods and services was indexed to the US dollar.

Since the promulgation of the local currency this June, it has incessantly plunged against the US dollar and was trading at US$1: ZWL$18 on the parallel market as of yesterday.

Annual inflation as of this June, before government suspended the publication of inflation figures, was 176%, but critics say the rate is now way above 800%.

The company said its business units were, however, resilient and proactive despite these factors and this helped the group to record a fair performance.

The group’s Distribution Group Africa (DGA) Zimbabwe, which houses a plethora of leading brands, had a turnover growth of 114%, whereas DGA Malawi recorded a marginal growth as it struggled to trade with defaulting large customers who were put on stop supply.

DGA Zambia’s revenue dropped 3% compared to the prior year in US dollar terms.

Another subsidiary, vehicle spares and accessories retail outlet, Transerv, recorded 37% revenue growth despite the onerous trading environment.

Consequently, during the financial year ended June 30, 2019, Axia profit trebled 275% to ZWL$63 million from ZWL$16,8 million in the prior year.

Revenue grew 102% to ZWL$557,4 million during the year driven by a mixed volume performance across operations.

Due to the change of functional currency from US dollars to the Zimbabwe dollar, the group recorded ZWL$21,9 million in other comprehensive incomes for the year ended June 2019 as a result of converting regional results from their local currencies to ZWL$.

During the period under review, the company contributed ZWL$5,8 million to the fiscus through Intermediated Money Transfer Tax since its introduction in October 2018.

Borrowings decreased by ZWL$3,9 million as a result of increased cash sales and collection of trade receivables, which improved cash and cash equivalent balances.

The group generated cash of ZWL$48,6 million from operations against ZWL$10,1 million in the comparative period.

Capex for the year was ZWL$4,8 million expended towards maintenance and expansion projects.

Cash and cash equivalents at the end of the financial year grew to ZWL$29,9 million from ZWL$7,2 million prior in the year.

The company said while full compliance with International Financial Reporting Standards (IFRSs) has been possible in previous reporting periods, only partial compliance has been achieved this year as the requirements to comply with Statutory Instrument 33 of 2019 presented challenges.

During the period, the group, through its subsidiary TV Sales & Home, successfully acquired a 49% shareholding in Restapedic, a bedding manufacturing concern at the tune of ZWL$2,4 million.

“Restapedic is a synergistic business to the group’s portfolio which, together with other suppliers, will help in securing the supply chain of bedding units for TV Sales & Home. Competitions and Tariffs Commission’s approval for this transaction was obtained in January 2019,” Ngwerume said.

During the fourth quarter of the financial year, TV Sales & Home together with a strategic partner established a lounge suite manufacturing business, Legend Lounge (Pvt) Limited.