GROUP PERFORMANCE REVIEW
The group has weathered the storm and the performance in 2010 was very encouraging. The continuing operations of the group yielded a loss before tax of $2.8 million (2009: $9.2 million). This performance was weighed down by an interest payable bill of $5.5 million on borrowings which averaged approximately $40 million in 2010. The focus has been to bring back profitability across the group with emphasis on growth in turnover and improvement in margins. The discontinued operations reported a profit before tax of $7.3 million (2009: loss of $1.5 million) mainly from the financial services.
Span of operations (as at 31 Dec 2010)
- Turnover: $ 276 million
- Number of stores outlets: 24
- Number of supermarket outlets: 51
- Number of hotels: 3
- Area of land under cropping (60% tea 32% timber, 3% macadamia, 3% maize): 4,350 hectares
- Employees (permanent staff 71%): 7,331
- Market capitalization: $ 109 million
Store portfolios as at 31 Dec 2009
- Supermarkets: 52
- Departmental store: 8
- Hardware departments: 0
- Home and beauty stores: 14
Store portfolios (as at 31 Dec 2009)
- Supermarkets: 51
- Departmental store: 8
- Hardware departments: 5
- Home and beauty stores: 11
Store portfolios ( from 31 Dec 2009 to 31 Dec 2010)
- Supermarkets: 3 (opened) and 4 (closed)
- Departmental store: 0 (opened) and 0 (closed)
- Hardware departments: 5 (opened) and 0 (closed)
- Home and beauty stores: 0 (opened) and 3 (closed)
TM SUPERMARKETS: Overall an excellent performance in sales for the year. Productivity indicators were good as a result of buoyant sales. The turnover was however, negatively affected by constant repairs of old refrigeration, bakery and butchery equipment. In addition the ZESA power cuts affected the production in bakery, butchery and other perishables. The company recorded a profit before tax of $574,000 in 2010 (2009: loss of $3.8 million).
MEIKLES HOSPITALITY (Private) Limited (formerly Meikles Africa Hotels): Whilst hotel occupancies have continued to recover, the average room rates are not growing as quickly and to the required levels to achieve growth in profits. The discount policies have negated this growth in average room rate; however, we could not have achieved the occupancies in the environment without the discounts. The hotels registered a profit before tax of $769, 000 in 2010 (2009: loss of $157,000).
THOMAS MEIKLE STORES (“TMS”): 2010 has been characterized by TMS’ drive to bring the company into profitability by increasing turnover. The main constraint has been the lack of capital and the high cost of borrowing. Despite these challenges, significant quantities of good quality Asian stock were ordered earlier in the year 2010 and the Stores were well stocked for the Christmas season. This, coupled with the major promotion to significantly increase credit account numbers, resulted in an increase of 247% in turnover in 2010 compared to 2009. The stores registered a loss before tax of $3.4 million in 2010 (2009: loss of $2.8 million).
TANGANDA TEA COMPANY: The bulk tea production was 8117 tons in 2010 compared to 7082 tons in 2009. The production could have been more had it not been for the reduced winter rains and also the delayed arrival of the summer rains. The shortage of power impacted on the planned irrigation. The company is diversifying its operations into other crops such as Avocados and macadamias. This process has already started and will reduce the company’s dependency on tea in the future. The company recorded a loss before tax of $869,000 in 2010 (2009: profit of $649,000).
DEMERGER FROM KINGDOM FINANCIAL HOLDINGS LIMITED (KFHL)
The shareholders approved the terms of the demerger of KFHL from Meikles Limited (“company”) on 13 October 2010. The terms included conditions precedent such as High Court approval of the reduction of KFHL’s share capital by US$22.5 million and also approval of the demerger by the Minister of Youth Development and Indigenisation. The High Court approval for the capital reduction was secured on 14 December 2010 while the approval by the Minister of Youth Development and Indigenisation was obtained on 11 February 2011. With these approvals, the company is now working on finalising the demerger through the distribution of KFHL’s shares to the company’s shareholders. This process will be concluded on or before 28 February 2011.
PROPOSED INVESTMENT BY PICK N PAY INTO TM SUPERMARKETS (“TM”)
As shareholders will know, the company entered into negotiations with Pick N Pay of South Africa for them to increase their shareholding in TM from 25% to 49%. These negotiations were successfully concluded in the third quarter of 2010 but with suspensive condition being the approval of the proposed transaction by regulatory authorities including the Reserve Bank of South Africa, Reserve Bank of Zimbabwe and the Minister of Youth Development and Indigenisation. The approvals by the Reserve Bank of South Africa have been secured while the approvals from the other mentioned regulatory authorities are still awaited. Management is confident that these approvals will be secured in the short term.
CHANGE IN FINANCIAL YEAR END
As previously announced, Meikles Limited changed its financial year end from 31 December to 31 March. Accordingly, the group will be publishing its 15 months results for the period to 31 March 2011 in May 2011.
The future prospects of the group look very promising. All the operational bottlenecks are being smoothened out and a lot of progress was made in 2010. This now forms the basis of the continued growth of the various operations across the group. The capitalization and high cost of borrowings are a challenge and management is confident that this challenge is not insurmountable and will endeavour to grow the profitability of the group in the current environment.