Low liquidity threatens Simbisa’s expansion drive

“Simbisa Brands Limited sees significant growth opportunities in its largest markets for its flagship brands,” Simbisa chairperson Addington Bexley Chinake said in a statement for the 12 months ended June 30, 2023.
FAST-FOOD giant Simbisa Brands Limited’s plan to spend US$22 million on 92 new outlets is under threat due to a critically illiquid position.

During the year ended June 30, 2023, Simbisa’s current borrowings — which are formal borrowings outside of accounts payable — rose by US$7,88 million from the comparable year.

Added to this, the firm’s trade and other payables, which is what it owes its vendors for inventory-related goods, rose by US$7,38 million during the period under review.

Resultantly, the company had only 65 US cents to every dollar of short debt.

“Simbisa Brands Limited sees significant growth opportunities in its largest markets for its flagship brands,” Simbisa chairperson Addington Bexley Chinake said in a statement for the 12 months ended June 30, 2023.

“The group has invested in talented leaders to lead these brands and has recruited skilled personnel to ensure quality, consistency, and innovation within its franchising division.”

The chairperson added: “For the year ending June 30, 2024, Simbisa plans to open 92 new stores at a total cost of more than US$22 million.

“Additionally, the company is exploring value-creating initiatives with partners throughout its value chain. These strategic moves aim to fuel further growth and expansion for Simbisa Brands Limited. There will be a continuous strategic review of operations in all the smaller markets.”

There has been a significant increase in the total number of stores, with a net growth of 7% since the beginning of the financial year under review to close the period with 646 stores.

The firm’s capital expenditure was nearly US$30 million across all its markets in Zimbabwe, along with its regional markets in Kenya, Ghana, Mauritius and Zambia.

Revenue increased by 23% to US$286,97 million, from the comparative 2022 period, with Zimbabwe’s growth contribution at 34%, while the region grew by 5%.

However, the firm noted that its business was affected by soaring inflation, volatile exchange rates, uncertain economic policies and energy deficiencies, during the period under review.

These challenges remain the biggest threat to Simbisa’s profitability for the 2024 financial year.

Simbisa chief executive officer Basil Dionisio said the group made a strategic decision to streamline the brand portfolio to focus entirely on the best-performing core brands in the region, which entailed the closure of several underperforming outlets.

This exercise would continue into financial year (FY) 2024, with the closure of a further nine counters in the non-core brand category.

“The group remains committed to diversifying revenue streams by growing our market share in the casual dining sector and increasing the revenue contribution from deliveries,” Dionisio said.

“We are confident that the reorganisation exercise that commenced in FY2023 and that will be carried through into FY2024, with a fresh brand-focused approach, will allow the group to deliver even more value and satisfaction to its customers.”

The 92 net new counters set to open in the 2024 financial year are expected to drive growth and unlock shareholder value.

“In the short to medium term, the primary growth markets will be Kenya and Zimbabwe. However, Simbisa remains vigilant of new growth opportunities in existing and potential new markets and continues exploring business development options,” Dionisio said.

A near 71% reduction in foreign exchange and other gains during the period under review to US$1,19 million, from the comparative 2022 period, kept the company’s profit after tax subdued at US$19,4 million.

This was from a 2022 comparative of US$19,06 million.-newsday