‘Meikles’ problems not insurmountable’

MEIKLES Ltd group chief executive Brendan Beaumont believes the problems the company faces are not insurmountable. This week businessdigest’s chief reporter Paul Nyakazeya caught up with Beaumont who spoke about Meikles’ operations, de-merger, challenges and the company’s future plans.

Nyakazeya: Your retail division, TM Supermarkets, faces stiff competition from traditional and new players. What strategies do you have to see the entity maintain its market share or grow it?

Beaumont : You will be aware that TM Supermarkets was specified for over two thirds of 2009, along with its sister companies, while the parent company was suspended from the Zimbabwe Stock Exchange (ZSE) for a total of five months during the period 2009/10.

 

The net effect of these developments was low trading volumes and lost market share culminating in a US$4 million loss for 2009.
However, shareholders have a firm view of where they wish to take this business, and how they re-configure it, consequently the group plans to recapitalise its operations and generally give them a much needed face-lift over the next 12-24 months.

Naturally, TM is catered for in this plan. Suffice to say that reduction of shrinkage (retail jargon for inexplicable disappearance of stock), improvement in working capital, refurbishment, up-skilling and skills retention and technological upgrade are all priorities, while maximisation of the Pick n Pay relationship provides the single most effective means of tackling most of these priority areas.

Much goodwill resides in the TM brand, which boasts a track record in excess of 30 years, and having the widest, truly national branch network provides reach beyond the capabilities of all local competitors. More information will be made available as this plan is implemented.

Nyakazeya: The tourism industry has been hit hard by the local recession as well as the global recession, how are you going to revive your hotel business.

Beaumont: Our major markets are gradually moving out of recession including South Africa.  At Victoria Falls we are already experiencing a significant growth in occupancies.  Cape Grace will also see an increase in occupancies although there is significant new competition in the marketplace.

We have been busy looking at new markets such as Russia, China and the East.  In Harare, Meikles Hotel relies on commercial business so occupancy growth will depend on new investment into Zimbabwe and new airlines flying into Zimbabwe. All three hotel operations are profitable.
Nyakazeya: Are you in any way benefiting from the spin offs of the World Cup what is your strategy post World Cup?

Beaumont: Cape Grace in Cape Town will obviously benefit from the World Cup, the Victoria Falls Hotel has some group bookings and we still anticipate pickup  prior to, during and post World Cup.

Meikles Hotel in Harare has not yet secured any firm bookings although we have had enquiries, again we anticipate some pickup. Our strategy post World Cup is linked to the answer above. Cape Grace has already been refurbished and US$7 million is needed to begin refurbishing both Meikles Hotel and the Victoria Falls Hotel in order to update and upgrade our product, and gain further market share.

Nyakazeya: As of May 15, Meikles had net borrowings of US$17 million, which were made up of U$1,7 million offshore and US$15,4 million onshore loans taken to fund working capital requirements. The US$15,4 million local borrowing is said to be attracting 22% interest per annum, adding to 44% including annualised arrangement fees. What are your views on local bank’s interest rates?

Beaumont: Whilst local banks interest rates are generally higher than in other parts of the world, due to a shortage of the US dollar, it is the associated fees which are very expensive and often equate to more than the interest rate applicable to the loan.

Nyakazeya: You paid close to US$3 million in loan interest and received just US$10 000 on similar loans in the financial period to May 15 this year. How does the group intend to replace the expensive debt with cheaper funds through onshore or offshore means?

Beaumont: Obviously we are concerned at the cost of local borrowing. In an effort to reduce the overall cost in the short term; we are in the process of moving some borrowings to lenders whose costs are lower than others. Offshore borrowings are being sought where this is possible that is to fund projects of a capital nature.

In the longer term, part of any capital raised will be applied to reducing the quantum of local borrowing.
Nyakazeya: What do you attribute Meikles Ltd’s loss to?

Beaumont: There are macroeconomic fundamentals which are common to all businesses operating in Zimbabwe, which conspired with Meikles’ internal, well documented, long drawn out, and as yet unresolved, shareholder problems that saw the group being suspended from the Zimbabwe and London bourses and specified during 2009/10, along with the majority shareholders. All persons specified have now all been de-specified.

However during the time of the specifications investor confidence plunged and would-be investors adopted a wait-and-see approach to the Meikles investment story.

This perception impacted upon the group’s ability to borrow and negotiate favourable terms with suppliers and sub-optimal stocking levels, culminating in operating losses.

Having said that, all indications are that Meikles will return to profitability during this year.
Nyakazeya: You said Meikles Limited is seeking to raise US$53,7 million to recapitalise its business, fund long overdue approved capital projects and end a two-year recapitalisation drought. How far have you gone with regards to raising the money?

 

Beaumont: We have started the process with various interested parties and will be making recommendations to the board in due course.

Nyakazeya: What is the current shareholding for Meikles Limited?

Beaumont:  As of 24 May the top eight are: EW Capital Holdings 10,56%, JRTM Investments (Pvt) Ltd 8,70%, ASH Investment (PVT) Ltd 8,61%, FPS Investments (Pvt) Ltd 8,55%, ACM Investments (PVT) Ltd 8,54%, APWM Investments (Pvt) Ltd 8,54%, Old Mutual Assurance Company Zimbabwe  6,89% and Valleyfield Investments (Pvt) Ltd 2,59%

Nyakazeya: Has there been any formal communication between Nigel Chanakira and John Moxon this year?
Beaumont: No there has been none, other than through both parties’ legal representatives

Nyakazeya: Who is Brendan Beaumont, what motivates and inspires you?
Beaumont: The problems Meikles faces are not insurmountable, but they are significant. Can the group’s fortunes be reversed? I would not be here if I did not believe that was possible. The journey to full recovery will be long and tough; some external impediments to performance remain.

However the positives include the skills that the group has retained, the diversified nature of the Meikles portfolio, the stability that dollarisation has brought and indications that western countries are climbing out of the global recession.   
I believe in keeping things simple and giving competent and experienced people the space to do what they do best. My approach is very hands-on, and my board of directors is focussed on operational issues. We seek to re-establish group synergies, pay special attention to stores and supermarkets, and as I said earlier, return to profitability by the end of 2010.

Nyakazeya: What do you think of the tourism industry in Zimbabwe at the moment.
Beaumont: Tourism in Zimbabwe is gradually recovering especially at Victoria Falls where we are gaining market share from the Zambian operations.  This trend should continue if the Zimbabwe situation continues to stabilise.

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