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COMMENTARY
INTRODUCTION The six months ended 31 March 2013 continued to be very difficult mostly as a result of a depressed market. The effect was most pronounced in our formal sector commercial clients, where we are finding that almost all of our customers are struggling to fund their operations and have no funds for anything beyond necessities. This situation of tight liquidity seems to have spilled over into the retail sector, which is also slower than anticipated. Although the group remains profitable, planned throughput targets are not being reached. FINANCIAL PERFORMANCE Turnover at US$15.2m was marginally up when compared to the same period last year. Gross profit rose by 12.5% to US$4.6m, however, expenses rose by 14% to US$4.1m mainly driven by the expansion of the retail network which, we believe, will ultimately result in an a substantial growth in throughput. As a result, EBIT remained substantially unchanged at US$620k. Interest also remained unchanged at US$312k, which resulted in a static profit before tax of US$308k. A marginal increase in taxation meant a small reduction in the attributable earnings from US$236k to US$229k. Close management of working capital has brought borrowings down to US$3.5m from US$4.9m a year ago, which will result in reduced cost of borrowings. REVIEW OF OPERATIONS Trading Divisions As stated earlier, the performance of the trading operations did not meet expectations, mainly because of market conditions and mostly in the industrial and contracting sales area. The drive to grow the Electrosales brand as a household name, in hardware and electrical products, is working with the retail experience being steadily improved across the nation. Concerted efforts to improve sales to larger, corporate clients have not yielded great results to date, however, we believe that this is due to market constraints and this work is planned to continue. Engineering Divisions The decision, taken about a year ago, to cut overheads in the engineering divisions turned out to have been correct. With the reduced overhead structure the operations were able to maintain improved profitability despite a reduced throughput. Unfortunately, there has been a loss of technical ability as a result of these changes, which, we will have to regain should demand recover. OUTLOOK We are confident that our change in strategic direction last year, was correct, and that we have positioned ourselves well to make the most of the current economic circumstances. Further, the base that we are developing now, will put us in a strong position to capitalise on an improved economic climate, as and when this happens.
Notes Operating cashflow before re-investment in working capital changes Increase in working capital Operating cash flow Income taxes paid Net cash generated/(used) in operations
At 31 March 2013, investment property comprised: Land and buildings located in Ruwa, Gweru, Bulawayo, Chiredzi and Chinhoyi. The fair value is based on a Directors valuation done on the 31 March 2013. The fair value was determined based on current prices in an active market for similar property in the same location and condition. The properties are leased out on operating leases. At 31 Mar 2013 USD 7 Inventories Finished goods Raw materials Work in progress Goods in transit Allowance for obsolete inventory 7 590 789 843 189 71 222 631 153 (782 324) 8 354 029 8 Trade and other receivables Trade Allowance for credit losses At 31 Mar 2012 USD 7 230 631 1 036 166 161 320 613 583 (214 372) 8 827 328 At 30 Sept 2012 USD 6 520 278 995 922 98 631 732 800 (602 446) 7 745 185
72 966
(1 494 652)
64 990
(238 424)
(37 739)
(109 429)
826 410
2 170 270
(104 463)
660 952
637 879
(148 902)
Net cash and cash equivalents at beginning of period Cash and cash equivalents at end of period
(1 162 567)
(1 013 665)
(1 013 665)
2 109 442 (256 263) 1 853 179 791 392 2 644 571
2 670 515 (63 507) 2 607 008 617 498 3 224 506
2 266 308 (366 709) 1 899 599 747 481 2 647 080
(501 615)
(375 786)
(1 162 468)
Other
Cash and cash equivalents For the purposes of statement of cash flows, cash and cash equivalents include cash on hand and in banks net of outstanding bank overdrafts. Cash and cash equivalent at the end of of the half year as shown in the statement of cashflows can be reconciled to the related items in statement of financial position as follows At 31 Mar 2013 USD Bank and cash balances Bank overdraft 753 323 (1 254 938) (501 615) At 31 Mar 2012 USD 867 727 (1 243 513) (375 786) At 30 Sept 2012 USD 335 586 (1 498 054) (1 162 468)
39 078 34 931 -
(88 165) 7 987 834 7 500 446 235 608 10 Share capital Authorised share capital 500 000 000 ordinary shares at USD 0.0001 per share Issued and fully paid The movement in ordinary share capital is shown below: Ordinary share capital 1 October Ordinary shares issued Share buyback
50 000
50 000
50 000
Notes
(174 698) (3 777) 7 557 579 7 500 446 (290 399) 605 222 (120 597) 9 406
Turnover Cost of Sales Gross Profit Sundry Revenue Operating Expenses Operating Profit Finance Cost Profit before taxation Taxation Profit after taxation
Balance at 1 October 2011 Adjustment to prior year Profit after tax attributable to shareholders Share buyback Issue of shares Balance at 30 September 2012
39 441
7 820 937
(6 256)
(150 044) 7 704 078 12 Borrowings Long term borrowings Short term borrowings Bankers acceptances Bank overdraft
420 051
557 288
464 902
5 6
13 Financial risk management objectives and policies The Groups principal financial liabilities comprise finance lease liabilities, loans payable, bank overdrafts and trade payables. The main purpose of these financial liabilities is to raise finance for the Groups operations. The Group has various financial assets such as trade receivables and cash and short term deposits, which arise directly from its operations. Exposure to credit, interest rate and currency risk arises in the normal course of Groups business and these are main risks arising from the Groups financial instruments. The Board of Directors reviews and agrees policies for managing each of these risks which are summarised below: Credit risk Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. The Group assumes foreign credit risk only on customers approved by the Board and follows credit review procedures for local credit customers. Interest rate risk The Groups exposure to the risk of changes in market interest rates relates primarily to the Groups long and short term debt obligations and bank overdrafts. The Groups policy is to manage its interest cost using a mix of fixed and variable rate debts. Currency risk The Group is exposed to foreign currency risk on transactions that are denominated in a currency other than the United States Dollar. The currency giving rise to this risk is primarily the Zambian Kwacha. In respect of all monetary assets and liabilities held in currencies other than the United States Dollar, the Group ensures that the net exposure is kept to an acceptable level, by buying or selling foreign currencies at spot rates where necessary to address short-term imbalances. The Groups exposure to foreign currency changes is not significant.
7 8 9
8 827 328 3 224 506 867 727 12 919 561 18 622 125
7 745 185 2 647 080 335 586 10 727 851 16 345 753
Total Assets
17 389 831
Equity and Liabilities Share Capital Foreign Translation Reserve Derived Equity Retained earnings/(loss)
10
12
11 12
17 389 831
1 373 949
1 442 914
1 353 943
28 June 2013
DIRECTORS: Dr. S.H. Makoni, H.N. Macklin, J.B. Reid, M.S. Gurira, M.S. Kretzmann, C.C.M. Tambo, N.H. Kretzmer
Property, plant and equipment Cost or Valuation Additions Disposals Depreciation for the period