Zimbabwe | ZSE

The operating environment in the first quarter of the financial year saw increased deterioration of macros on the back of imported inflationary pressures and a rapidly deteriorating currency. Subsequent contractionary measures from the central bank to slow the rate of inflation also had the effect of inducing a liquidity crunch. Whilst the rainfall season was not as pronounced as the previous year, cane contribution from the company’s plantations grew 12% y/y aided by improvements in yields from 101tn/ hectare to 107tn /hectare. However, cane deliveries from private farmers underperformed the comparable season by 5% as spells of wet weather delayed harvest operations. Overall tonnes milled grew 2% to 1,310k tonnes with Hippo Valley contributing 735k tonnes whilst private farmers brought in 575k tonnes. In terms of sugar production, the marginal increases in tonnes milled were unfortunately diluted by poor quality of cane leading to a decline of 3% in sugar output to 157k tonnes.

The theme of industry consolidation in the banking sector continued on the back of upped capitalisation requirements by the Apex bank. Building societies to CY21 were mostly under-capitalised necessitating a succession of mergers for compliance. The competition and tariffs commission is however still mulling approvals for some of the larger corporate actions in the pipeline notably CBZ/FML. With the fulfillment of capitalization requirements by Tier 1 banks, 1H22 results saw a material increase in dividends from the sector.

The business continued pursuing new strategies that drive performance despite a challenging economic environment. Through the mobile money business, the Group launched EcoCash Bill Manager, a platform that aggregates service providers and allows customers to conveniently pay their bills. As at end of 1H23, EcoCash had over 200 000 customers onboarded on the platform. The Group also launched the EcoCash chatbot, an AI driven customer experience solution to improve efficiencies in query resolution as well as improve the overall mobile money experience. The EcoCash business remains the major revenue contributor closing the period under review with a contribution of circa 50%. Steward Bank, which contributed 29% to total revenue, continued the journey of digital transformation with the commencement of the second phase of the upgrade. The second phase will see an increased automation and digitalization of the Bank’s systems and processes as well as enhanced capacity to launch new banking innovations. Following the revamp of the low Know-Your-Customer (KYC) iSave accounts platform, the Group managed to onboard 234 000 customers on iSave accounts and achieved a 10% reduction in mobile banking registration queries. The business continues to build around the core life and short-term insurance products for the Insurtech business with the business line contributing 18% to total revenue. Regardless, total revenue for the Group declined in real terms compared to same period last year on account of running inflation and transaction limits. Adjusted EBITDA marginally inched up reflective of the benefits of ongoing digital transformations which have seen an improvement in operational efficiencies. The Group closed the period under review with a positive PAT compared to a loss registered end of FY22.

Econet’s financial performance continues to be weighed down by misalignment between tariffs and the cost base. Year-on-year inflation closed the period under review at 285% while tariffs increased by 61% over the same period resulting in loss of value. Despite voice and data volumes increasing by 27% and 40%, respectively, these improvements were offset by sub-inflation tariffs resulting in a decline in revenue in real terms in 1H23. EBITDA also registered a decline in 1H23 compared to same period last year. The reduction in profit margin was partly attributable to low revenues due to sub-optimal tariffs coupled with cost pressures experienced under the hyperinflationary environment. As a result of the exchange rate movements over the last six months, the business recorded significant foreign exchange losses which represented 39% of revenue against a prior year comparative of 2% virtually eroding any possibility of achieving an accounting profit. Further headwinds on profitability came from the introduction of the telecommunication traffic monitoring system (TTMS) system which became fully operational on 1 May 2022. The system has placed an additional tax burden of US6cents per minute on the business on international incoming traffic, thereby increasing costs. These taxes are additional revenue taxes to those already paid by the Company prior to any allocation of revenue to cost of operations.

Regional markets were adversely affected by imported inflation from the global arena and resultant supply chain hiccups from the Ukraine/Russia war. On the local front, dislocations in monetary stability had a defined impact in the business environment. However, consumer spend in foreign currency remained resilient as key sectors such as mining saw increased activity. Looking at segments, lager volumes grew 18% y/y from a more stabilised product into the market. Operations however continued to be hamstrung by production capacity and supply constraints in packing. Local sorghum beer volumes registered a 14% uptick driven by re-introduction of scud packs and foray into flavoured beer. The South African entity, United National Breweries benefited from marketing initiatives with a volumes increase of 63%. In the Zambian market, a positive development was that of volumes turning the corner into positive territory growing 7% for the half year. Sparkling beverages volumes grew by 22% y/y whilst Afdis volumes recorded a 22% increase to 1H23. Delta’s outturn for 1H23 as per management’s comments was circa US$346mn, up 32% versus the comparable period last year. UNB South Africa recorded a breakeven outturn whilst Natbrew Zambia posted a loss due to depressed volumes. Overall, from guidance of basic EPS of US$0.0584, Delta registered a PAT of US$76mn. The group continued to exhibit strong cash generation abilities, with OCF/EBITDA improving from 70% in 1H22 to 92% in the period under review. The Board declared an interim dividend of USc1 per share payable on the 15th of December.

Dislocations in money supply growth on the domestic front and imported inflationary pressures were major impediments within the operating environment to FY22. As a result, consumer demand slowed in the second half of the financial year as inflation accelerated, particularly in respect of high value products. Despite this, the group experienced an 8% uplift in aggregate volumes to 569,000 tons. In the period under review, the Board approved the disposal of National Foods’ 40% stake in Pure Oil and the transaction is currently underway. Volumes in the flour division slowed by 1.9%, dampened by higher international wheat prices and constraint availability locally. Maize meal volumes remained depressed at a 2.3% decline relative to the prior period largely due to muted demand that goes with a bumper harvest. In the stockfeeds segment, volumes continued to be driven by the poultry sector, rising another 12%. The down packed division reported a 31% positive shift in volumes with rice making some headway into informal sector channels whilst volumes in the cereals unit grew 35%. Additional capacity in the snacks division increased volumes by 24% whilst biscuit volumes were impacted by higher flour prices declining 3% y/y. OCF/EBITDA decreased from 53.6% in the prior year to 4.28% due to an aggressive increase in working capital changes. Overall, the group remained cash positive to FY22. The Board declared a final dividend of USc 5.95 per share and ZW$1,103 cents per share representing a 4.4% dividend yield at current levels.