meikles limited
INTERIM MANAGEMENT REPORT RELEASED ON 17 FEBRUARY 2014
This Interim Management Statement is issued by Meikles Limited in accordance
with the UK Listing Authority's Disclosure and Transparency Rules. Unless
stated otherwise, key trends and figures highlighted below refer to the nine
months ended 31 December 2013 and the corresponding period in the previous
financial year.
Operating environment
Zimbabwe is on the verge of entering a deflationary period as year on year
inflation was 0.33% as at 31 December 2013, particularly with regard to
foodstuffs. Aggregate demand continues to fall as the liquidity situation has
remained constrained. The cost of funding has gone up due to shortage of funds
on the local money market. The country's GDP target of 3.4% for 2013 may not
have been achieved due to a myriad of economic challenges. However, the
agricultural output for 2013/2014 season may benefit from above average
rainfall which has been received in most parts of Zimbabwe. According to
recently released publication, "Mining in Africa Country Investment Guide"
which was compiled by Singapore-based Global Business Reports, Zimbabwe though
risky, has an estimated 30% of the world's diamond reserves, as well as
substantial deposits of gold, platinum group metals and coal. These have not
been fully exploited and therefore offer significant opportunities to promote
economic growth in Zimbabwe.
Funds held on deposit at the Reserve Bank of Zimbabwe (RBZ)
The company has continued engaging the Reserve Bank of Zimbabwe and the parent
ministry of Finance and Economic Development with respect to the recovery of
funds held by the Bank on deposit. In December 2013 legal action was instituted
against both the RBZ and the Ministry of Finance and Economic Development to
secure the repayment of the deposit held by the RBZ. There are individuals who
recognize the need to facilitate a solution to this issue to enable the Group
to access these funds which are due. The Group is appreciative of these
proactive efforts. However, there are also individuals who are frustrating a
resolution to this issue. Their motivation is uncertain but their efforts are
placing the Group and its stakeholders at risk. The legal action has been taken
in an attempt to hasten and secure a resolution. The sum claimed as at 31
December 2013 amounted to approximately US$89 million. The receipt of these
funds is critical to the well being of the Group and all its stakeholders
Mining
The Group has progressed its involvement in the mining sector. The first gold
project has been identified and implementation is being finalised. A chrome
opportunity has been concluded and is awaiting regulatory approvals. The Group
is working very closely with our partner, Centar, and has a vision to become a
significant player in the mining sector.
Retail operations
Consumer demand has been receding. Trading in our supermarkets, particularly in
groceries, has been subdued in the first nine months of our financial year.
However turnover in fruit and vegetables, takeaways, butcheries and liquor has
shown useful growth. The turnover in TM Supermarkets (TM) was 1% above that of
the comparative period in 2012. Sales and operating margins though comparable
to historical levels are under pressure due to lack of spending power by
consumers but have benefited from the growth in the service areas. In spite of
the challenges being faced by the economy, TM is continuing with its branch
refurbishment programme and the opening of new stores. As previously reported,
the funds for this programme are in place.
The exciting new low pricing, fast moving consumer goods retail offering under
Meikles Mega Market (MMM) has been well received by the consumers. The first
store opened its doors in December 2013 and the daily turnovers reflect a very
satisfactory trend. Consumers have found favour with this new model due to its
value offering. Accordingly there are plans to roll out MMM in the key cities
of Zimbabwe progressively by the third quarter of the next financial year.
The departmental stores have been badly affected by the challenges in the
economy. Turnover for the nine months was 32% below that earned in the
comparative period and aggravated by the closure of three branches during the
course of the year 2013. Cash constraints on the procurement of suitable
merchandise have also negatively impacted these results. Cash constraints are
causing the future merchandising model to be streamlined and the number of
departments and trading space to be reduced. Overall operating costs have
reduced by 18% and the remaining branches should be profitable once the human
resource overhead is also rationalised.
Agro operations
The rains have been good thus far. The plantation development has progressed
well with 351 hectares being put under new crops in the last nine months. Thus,
as at 31 December 2013 the hectarage under coffee, avocadoes and macadamia was
229ha, 318ha and 62 ha respectively. The target remains for the company to have
300ha, 500ha and 750ha under coffee, avocadoes and macadamia by March 2015. We
are proud of the work that has been done on the estates and all stakeholders
stand to benefit.
The actual production of bulk tea to 31 December 2013 was 42% ahead of the same
period in the previous financial year. The bulk tea production for the year
ending 31 March 2014 will surpass the output of 7,500 tons achieved in the
previous financial year. The favourable weather conditions coupled with astute
estate management accounts for the improved bulk tea production. The tea prices
are now stable and comparable to the averages achieved in the year ended 31
March 2013, although short term volatilities were encountered in the second
quarter of our financial year due to a significant increase in tea production
by East African producers.
The new tea packaging plant has started arriving and will be installed and
brought into production by the first quarter of the coming financial year. The
plant will boost production and reduce packeted tea production costs, allowing
the company to adequately supply the local and regional markets.
Hospitality
The positive sentiment created by the hosting of the United Nations World
Tourism Organisation's (UNWTO) general assembly in August 2013 has led to an
increase in tourist arrivals in Zimbabwe. Its been reported by the Zimbabwe
Tourism Authority that an increase of 12% in tourist arrivals was recorded in
the first half of 2013. This trend is likely to have been sustained in the
second half of the year.
The holiday resort of Victoria Falls has enjoyed good occupancy rates post the
hosting of the UNWTO and our hotel, jointly managed with African Sun, has
benefited substantially. The Average Daily Rate (ADR) has improved by 17% and
Revpar (revenue per available room) has gone up by 12% for the period ended 31
December 2013 when compared to the same period in 2012. The Meikles Hotel has
achieved a 2% growth in its ADR and Revpar compared to the same period in 2012.
The refurbishments at both hotels have been well received by our guests and the
company will reap the rewards of an improved product offering going forward.
The Cape Grace Hotel is performing well and is achieving higher occupancies
than those of recent years. In consequence its performance will surpass that of
the previous financial year.
Conclusion
The Group operations are constantly reviewed and adapted to a changing
environment beset by numerous challenges among them low liquidity, high cost of
debt, poor access to capital markets and diminishing consumer demand. The
Group's position necessitates access to the funds currently held on deposit
with the RBZ. These funds are urgently required to move the Group forward.
END
Issued on 17 February 2014
Notes:
1. The financial information on which this statement is based has not been
reviewed and reported on by the Group's auditors.
2. Please note that matters highlighted above may contain forward looking
statements which are subject to various risks and uncertainties and other
factors, including, but not limited to:
- business conditions.
-political environment
-market related risks.
• A number of these factors are beyond the Group's control.
• These factors may cause the group's actual future results, performance or
achievements to differ from those expressed or implied.
• Any forward looking statements made are based on the knowledge of the Group
as at 17 February 2014.