Cambria Africa Plc

("Cambria" or the "Company")

Audited FY 2019 Results ("the Results"):

EPS of 0.26 US cents and NAV of 1.36 US cents

Cambria Africa PLC (AIM: CMB) ("Cambria" or the "Company") announces its audited results for FY 2019. Audited Financial Statements are available on the Company's website (www.cambriaafrica.com) and will be sent to shareholders today.

The Company achieved Consolidated Profit After Tax of $1.66 million for FY 2019. These profits were almost entirely attributable to the first half of FY 2019.  The company basically broke even in the second half of FY 2019.  Second half results were impacted by:

-      Introduction of a local currency for the first time since 2009 to replace the US dollar.  Subsequently all accounts, contracts, assets and liabilities denominated in US Dollars were by legislation deemed to be at parity to the new currency (ZWL).  The new currency opened at ZWL 2.5: US $1.0 (current interbank rate at ZWL 17.5: US $1.0),

-      The suspension by Paynet Zimbabwe of its services to Bank customers in June 2019 following their refusal to settle invoices in their contractual currency of US Dollars. Banks have subsequently refused to transact with Paynet despite the lack of a credible replacement for its services.

In response, the Company adopted a defensive approach in the second half by reducing expenses, hedging its assets and cashflow and minimising its cost of capital.  The Company's focus on preserving its Statement of Financial Position resulted in a 28% increase in Net Asset Value (NAV) per share to 1.36 US cents (1.05p) in FY 2019 from 1.06 US cents (0.82p) in FY 2018.

The Company basically achieved breakeven in the second half despite an 86% drop in revenues to $609,000 from $4.39 million in the first half of FY 2019, with operating costs reducing by 57% to $615,000 from $1.43 million in the first half of FY 2019 (first half figures extracted from unaudited interim results).

The Company achieved Earnings Per Share (EPS) of 0.26 US cents. Our year end procedures revealed an error in the Interim Reported EPS which should have been reported at 0.24 US cents per share instead of 0.27 US cents per share reported for the six months ended 28 February 2019.

FY 2019 Results highlights:

·      Group:

·      Net Equity (NAV) increased by $1.63 million (28%) to $7.39 million from $5.76 million at 31 August 2018. NAV per share increased by 28% from 1.06 US cents (81p) in FY 2018 to 1.36 US cents (1.05p) in FY 2019 demonstrating the success of the Company's strategy to preserve shareholder equity and to hedge its Statement of Financial Position assets against currency disruptions in Zimbabwe.

·      Group finance costs fell 80% to $51,000 from $252,000 in FY 2018 after the partial conversion of Venture Africa Limited's (VAL) loans implemented in July 2018. Consolidated debt decreased to $552,000 from $619,000 at the end of FY 2018. Consolidated debt has decreased by $2.77 million from $3.33 million at the end of FY 2017.

·    Consolidated operating costs decreased 46% to $2.2 million from $3.99 million following drastic cost saving measures introduced by the Group.

·      Cambria's Consolidated PAT decreased 26% to $1.66 million from $2.24 million in FY 2018, mainly as a result of the suspension of Paynet's operations on 10 June 2019 and the impact of ZWL devaluation since 22 February 2019 on local operations. 

·     Earnings Per Share (EPS) decreased by 48% to 0.26 US Cents from 0.50 US Cents in FY 2018 as result of the decrease in PAT and a 44% increase in weighted average shares in issue to 544.6 million from 379.5 million at the end of FY 2018.

·      Consolidated EBITDA decreased 41% to $2.05 million from $3.46 million in FY 2018.

·      Cambria's central costs increased by $31,000 to $216,000 from $185,000 in FY 2018. Cambria's CEO and Directors rendered services to Cambria without compensation during FY 2019.

·      The Statement of Comprehensive Income includes a foreign currency translation adjustment (profit) of $251,000 attributable to Cambria.

·      Divisional:

·      The suspension by Paynet Zimbabwe of its services to Bank customers following their refusal to settle invoices in the contractual currency of US Dollars and the disruptions caused by the new currency introduced in Zimbabwe, significantly impacted Payserv's results with a:

-  48% decrease in revenues to $3.96 million from $7.57 million,

-  39% decrease in consolidated EBITDA to $2.03 million from $3.32 million,

-  40% decrease in PBT to $1.85 million from $3.1 million,

-  27% decrease in consolidated PAT to $1.7 million from $2.34 million.

·      Despite the significant macro-economic challenges, Millchem demonstrated resilience maintaining profitability and reporting:

-  $1.04 million in revenues, a reduction of 45%,

-  36% gross profit margin, a 7% improvement from 29% gross profit margin in FY 2018 demonstrating the results of the Company's strategy to focus on a more profitable product mix,

-  18% decrease in EBITDA to $198,000 from $240,000 in FY 2018,

-  43% reduction in overheads to $171,000 from $300,000 in FY 2018,

-  15% decrease in PAT to $184,000 from $217,000 in FY 2018.

Net Asset Value (NAV):

Cambria proactively engaged in strategies to preserve shareholder value and strengthen its Statement of Financial Position.

The Company reported audited NAV at 31 August 2019 of $7.39 million (1.36 US cents per share), an increase of $1.63 million (0.30 US cents per share) compared to $5.76 million (1.06 US cents per share) in FY 2018. NAV is underpinned by the following material components:

-       Investment Property at fair value of $2.5 million included in property, plant and equipment,

-       Investment in Radar at $1.84 million (net of minority interests),

-       Listed Marketable Securities at fair value of $496,000,

-      Cash and cash equivalents of $1.92 million, of which $900,000 was held outside Zimbabwe at 31 August 2019 and the balance covered by the RBZ's commitment to honour Paynet Zimbabwe's Legacy Foreign Debt at ZWL1.00:USD1.00. Subsequent to the end of FY 2019, the RBZ has transferred $600,000 of these funds to Payserv Africa in Mauritius,

-       Liabilities include Loans and Borrowings of $552,000 of which $443,000 is owed to Cambria's majority shareholder, VAL.

Radar:

In December 2018, the Company's wholly owned subsidiary Paynet Zimbabwe (Pvt) Ltd ("Paynet), deployed an additional $400,000 to increase its effective interest in Radar Holdings Limited (Radar) to 8.98% from 7.83%. The Radar investment is held through Paynet's 72.07% (FY 2018: 62.84%) interest in AF Philip & Company (Pvt) Ltd (AF Philip). AF Philip holds a 15.65% interest in Hinshaw (Pvt) Ltd (Hinshaw) which, through its wholly owned subsidiaries, holds a 79.65% interest in Radar. 

AF Philip is consolidated into Cambria's Statement of Financial Position with the Radar investment reflected at a fair value of $2.55 million ($1.84 million after minority interests) translating into 40 US cents per Radar share. The Board considers the carrying value of 40 US cents per Radar share a reasonable reflection of the investment's fair value. The fair value of the Radar investment is underpinned by its Net Asset Value per share of 58 US cent reported in its most recent published financial statements.

Cambria remains desirous of increasing its investment in Radar and Paynet will continue to rely on the pre-emptive rights of AF Philip to increase its shareholding in Hinshaw.

Divisional Review

Payserv Africa Group

Payserv's revenues decreased by 48% to $3.96 million from $7.57 million in FY 2018 as a result of the suspension of Paynet's services and the currency translation impact in the second half of FY 2019. Consolidated EBITDA decreased by 39% to $2.03 million from $3.32 million in FY 2018.  PBT decreased by 40% to $1.85 million from $3.1 million and consolidated PAT decreased by 27% to $1.70 million from $2.34 million in FY 2018. 

Following the tumultuous events in the second half of FY 2019, Payserv is in the process of repositioning itself by focusing on the identification of replacement revenue streams for its existing technologies, containing its overheads and restarting its strategy of developing new FinTech initiatives using its current and new technologies.

Payserv achieved PAT of $211,000 in the second half of FY 2019.

Paynet Zimbabwe

Paynet Zimbabwe suspended its services to Zimbabwe's Banks on 10 June 2019 resulting in a significant reduction in operational activity. Accordingly, the number of transactions facilitated by Paynet in FY 2019 decreased by 33% to 18.6 million from 27.7 million transactions in FY 2018. No transactions are currently being processed for Paynet's historic portfolio of bank clients.

As part of its strategy to find replacement revenue streams, Paynet Zimbabwe concluded a fee-sharing arrangement with EcoCash Zimbabwe for the use of bulk payment software developed by Payserv Africa.  The software is used by merchants using EcoCash to distribute salaries and initiate payments to other merchants. EcoCash is Zimbabwe's dominant mobile payments operator.

Our partnership with Ecocash is gaining traction with 136,000 transactions with an aggregate value of ZWL 60 million processed since its inception on 19 June 2019. Paynet is entitled to a percentage revenue share translating to average revenue per transaction of ZWL5.00 to ZWL10.00 from transactions processed through its technology on the Ecocash platform.

Autopay Zimbabwe

Autopay is a leading payroll management business offering 1) a full-service Payroll Bureau; 2) Software and licensing of payroll and HR Products to major corporates and; 3) Online SME payroll processing.

Autopay continues to trade profitably in local currency and managed to increase its prices to absorb some of the negative currency fluctuations. It also continues the realignment of its strategy to increase its penetration into the SME market. Despite the increase in prices, it reported a 32% decrease in gross profit. The number of payslips processed increased 5.2% to 382,000 from 363,000 in FY 2018. Autopay's payment bureau processed 395,000 transactions, in line with that processed in FY 2018.

Subsequent to the end of FY 2019 Autopay became aware that Paywell SA, the owner of the payroll software licensed to Autopay in terms of an Exclusive Agency Agreement, has been targeting the Zimbabwe market, through distribution channels other than Autopay. Following a legal dispute raised by Autopay, Paywell SA gave notice to cancel its agency agreement with Autopay with effect from July 2020. In accordance with its Paywell Software License Agreement, Autopay's Paywell licenses will continue to be active for 12 months until end December 2020. The Company views these events as an opportunity to migrate its significant client base to improved payroll software platforms. The Company has commenced the process of engaging alternative software providers in addition to evaluating the merits of developing a proprietary payroll software solution.  

Tradanet (51% owned)

Tradanet provides customised loan processing and management software for Zimbabwe's largest Building Society CABS. It also provides hosted loan management solutions for emerging microfinance entities.

The introduction of the new functional currency had a significant impact on Tradanet with loan volumes decreasing to ZWL96.1 million (US $9 million) from US $125 million in FY 2018. Tradanet's loan book also decreased drastically totalling ZWL186 million ($17.4 million) at the end of FY 2019 vs US $178 million at the end of FY 2018.

Similar to the Company's other divisions, Tradanet adopted a defensive approach in the second half of FY 2019 aimed at ensuring breakeven and re-establishing a base from which to grow. It will aim to increase its revenues through pricing adjustments to reflect the inflationary pressures in Zimbabwe and the introduction of new products which include:

·     Flexicredit Hybrid - a product directed at employees of larger publicly held corporates which can be evaluated by reliance on publicly disclosed information.

·      Insurance Premium Financing.

·      Automobile ownership financing.

Millchem Zimbabwe

Millchem recorded a 15% decrease in after-tax profit to $184,000 from $217,000 for FY 2018 on the back of:

·      $1.04 million in revenues, a reduction of 45%,

·      36% gross profit margin, a 7% improvement from 29% gross profit margin in FY 2018,

·      18% decrease in EBITDA to $198,000 from $240,000 in FY 2018,

·      43% reduction in overheads to $171,000 from $300,000 in FY 2018.

Millchem's after tax profit for the second half of FY 2019 came in at $67,000 with the majority of the $184,000 reported PAT attributable to the first half of FY 2019.

Basis of Presentation and Foreign Currency Translation

The Consolidated Financial Statements are presented in US Dollars (USD), the Group's presentational currency. With effect from 22 February 2019, all its Zimbabwe subsidiaries have adopted the US Dollar as presentation currency with Zimbabwe 's Dollar (ZWL) as the functional currency. In translating the results of its Zimbabwe subsidiaries from functional (ZWL) to presentation currency (USD), the Company applied IAS 21 - Effects of Changes in Foreign Exchange Rates  and IAS 29 - Financial Reporting in Hyperinflationary Economies. In addition, it complied with local laws and regulations with emphasis on Statutory Instrument 33 of 2019, the Monetary Policy Statement of 20 February 2019 and Public Accountants and Auditors Board (PAAB) guidance of 21 March 2019.

Up to 22 February 2019, all cumulative income statement transactions, assets, liabilities and equity balances were translated at ZWL1.00:USD1.00 and any local transactions thereafter treated as ZWL transactions. For the Company's USD reporting purposes, transactions up to 22 February 2019 were maintained in USD. All ZWL transactions after 22 February 2019 were adjusted for Hyperinflationary conditions in accordance with IAS 29 before translation at the official interbank rate at the 31 August 2019. At 31 August 2019, all monetary ZWL asset and liability balances of its Zimbabwe subsidiaries were converted at the closing interbank rate with the exception of $1.2 million in monetary assets covered by the Reserve Bank of Zimbabwe (RBZ)'s commitment to honour "Legacy Foreign Debts" originating before 22 February 2019 at parity.  Non-monetary assets were recorded at their original historical USD cost after considering the applicable provisions of IAS 29. Net monetary gains or losses were not material and have been included directly in reserves. Resultant foreign exchange translation differences were accounted for through the foreign currency translation reserve in the Statement of Other Comprehensive Income reflecting a foreign currency translation adjustment (profit) of $251,000 attributable to Cambria.

The interbank rate has decreased from ZWL2.50:USD1:00 at the end of the Company's Interim Reporting Period (28 February 2019) to ZWL10.71:USD1:00 at 31 August 2019.  At this writing, the interbank rate stands at ZWL 17.50 against the US dollar. 

Subsequent Events

Legacy loans/ Blocked Funds allocated by RBZ 

Governor John P. Mangudya of the RBZ has allocated at parity (ZWL$1.00:USD$1.00) the sum of $600,000 of $1.2 million owed by Paynet Zimbabwe to Payserv Africa Limited, our wholly owned subsidiary in Mauritius.

Relying on the Governor's written commitment, in its Interim Results published on 31 May 2019, the Company announced that the RBZ would expunge Paynet Zimbabwe's obligations to Payserv Africa by mid-September 2019. While the commitment by the Governor to expunge the full amount of legacy debts by mid-September has been met with delays, we believe that he has shown tangible good faith in fulfilling his promises in this regard. Citing Zimbabwe's poor tobacco receipts, Governor Mangudya rescheduled his commitment to mid-October.  On his behalf, Deputy Director of Financial Markets Ernest Matiza, then committed to weekly allocations of US $100,000 starting in the week of 30 September.  To date, Paynet Zimbabwe has been able to confirm 6 of the twelve allocations which have come due.  Paynet Zimbabwe continues to constructively engage the RBZ on this matter.

Legal Updates

Exception to summons against BAZ upheld

Cambria announced on 18 November 2019, in relation to Payserv Africa's summons seeking damages of $100 million from Bankers Association of Zimbabwe (BAZ), that the Exception filed by BAZ has been upheld by Justice Mushore and Payserv Africa's lawsuit has been dismissed with Payserv Africa liable for BAZ's legal costs.  Through its Payserv subsidiaries, the Company is seeking Senior Counsels advice on the merits of reissuing summons against the BAZ and/or individual banks. The Company is also seeking advice on the merits of invoking the Doctrine of Effect to claim jurisdiction against certain banks in South Africa and the European Union.

Arbitration relating to Radar Share Offer

The Arbitration proceedings related to the purchase of additional shares in Radar through Hinshaw has been finalised. The Arbitrator has made an award in favour of the defendants and on advice from its Legal Counsel, Cambria will not seek to set the ruling aside.

In terms of the Arbitration proceedings the Company sought, through Paynet Zimbabwe, to enforce its pre-emptive rights to purchase a further 20% of shares in Hinshaw, which has a 79.65% shareholding in Radar. The Arbitrator ruled that Paynet Zimbabwe's pre-emptive rights were not triggered since in his opinion, no irrevocable offer had been made by Caulicle Investments (Pvt) Ltd, a 20% shareholder of Hinshaw, to sell its Hinshaw shares.

Changes to the board:

The Cambria board remains unchanged.

About Cambria Africa Plc:

Cambria Africa Plc (AIM: CMB), is an AIM listed investment company holding controlling interests and active management control in companies well-positioned to benefit from a turnaround and modernisation of Zimbabwe's economy. Its wholly owned operations in Zimbabwe are:

·     Payserv Africa, a FinTech company with $4 million in revenues in FY 2019. Payserv's Paynet Zimbabwe subsidiary has a proven track record of offering secure transactions to financial institutions and MNO's.  Paynet also cuts a wide swath in Zimbabwe's payroll management and consumer loan processing markets. Payserv's objective is to leverage its technology platforms to exploit opportunities which arise from FinTech disruptions.

·     Millchem Zimbabwe is a value-added chemicals distributor with $1.04 million in revenues for FY 2019.  The company is currently focused on ethanol-based solvents due to the significant local availability of ethanol.  Millchem continues to trade profitability following the successful implementation of Cambria's turnaround program.

Chief Executive's Report

In very simple terms, I failed to fully avert the impact of de-dollarization on Cambria (sudden devaluation and hyperinflation).  Zimbabwe has introduced a currency which forced the conversion of US dollar contracts into a currency which has dropped from parity to the US dollar (1:1) to an official interbank rate of ZWL 17.50 to US $1.00 at the date of this report.  Parallel market rates are reported at ZWL 28: US $1.  

The government has legislated that all local contracts, assets, and liabilities in US dollars would be at parity - effectively a retroactive devaluation.  For example, if a company owed the bank US $10 million, today it would owe ZWL 10 million or US $574,000 at the official rate and less than $400,000 at the parallel rate.  This created obvious winners and losers.  We realized immediately that unless we maintain the real value of our service, we would be losers either way.  The banks, working in concert through the Interbank Operations Committee (IOC) of the Bankers Association of Zimbabwe blocked this attempt, claimed they had an alternative, and have effectively embargoed our services as an industry. 

Despite triumphant proclamations to the contrary, seven months down the line the only encrypted, interbank bulk payment and clearing solution remains Paynet.  Today, the only client for this service is EcoCash, which is using the competitive advantage of the Paynet solution to make inroads into bulk salary and merchant payments.

Those who hoped to celebrate our demise, are yet to see their goals realized.  We have had our armour pierced but it remains intact and we continue to compete and re-invent ourselves.

·     Paynet has concluded a service agreement with EcoCash, the country's largest mobile payments operator, developing state of the art solutions for bulk payments of salaries and supplier payments.  We expect to grow with EcoCash as it continues to disrupt traditional banking services.  Risks to this strategy include attempts by traditional players to retard the entry of EcoCash into the salary and merchant payments space.

·     Through Tradanet, we continue to provide consumer loan processing services to CABS - Zimbabwe's largest building society owned by Old Mutual.  Whilst our revenues and earnings are negligible, any turnaround in consumer buying power will have a direct positive impact on our earnings.

·     Through AutoPay we continue to provide full-service payroll processing for the largest companies in Zimbabwe.  We have now expressed our charges as a percentage of the payroll, to reduce the impact of inflation and devaluation on the revenue stream. 

Legacy Debts:

The February Monetary Policy Statement allowed for registration of "Legacy Debts" to be provisioned for at parity to the US dollar.  Governor John P. Mangudya of the RBZ has allocated at parity (ZWL$1.00: USD$1.00) the sum of $600,000 of $1.2 million owed by Paynet Zimbabwe to Payserv Africa Limited, our wholly owned subsidiary in Mauritius.

Relying on the Governor's written commitment, in its Interim Results published on 31 May 2019, the Company announced that the RBZ would expunge Paynet Zimbabwe's obligations to Payserv Africa by mid-September 2019. While the commitment by the Governor to expunge the full amount of Legacy Debts by mid-September has been met with delays, we believe that he has shown tangible good faith in fulfilling his promises in this regard. Citing Zimbabwe's poor tobacco receipts, Governor Mangudya rescheduled his commitment to mid-October.  On his behalf, Deputy Director of Financial Markets Ernest Matiza, then committed to weekly allocations of US $100,000 starting in the week of 30 September.  To date, Paynet Zimbabwe has been able to confirm 6 of the thirteen allocations which have come due.  Paynet Zimbabwe continues to constructively engage the RBZ on this matter.

Outlook:

Despite heralding an era of market determined exchange rates, foreign exchange remains in short supply due to the disparity between what is effectively an official rate and the market rate.

As long as Zimbabwe is unable to allow market forces to determine optimal economic allocation, foreign direct investment will elude most sectors of the economy which are not export oriented.   To the extent that we have cash resources outside of Zimbabwe, and assets which have a market value, we have our defences.

We continue to develop financial technologies which are designed to ease mobile payments.  Our revenue sharing model with EcoCash, protects us to some degree from inflation and devaluation.  However, until there is a realistic market translation of ZWL income into repatriated US dollars earnings, the resultant earnings will remain exposed to currency devaluation.

On the other hand, Zimbabwe still presents an unparalleled opportunity if economic policies become aligned with free market economics and the country prioritises entry into a customs union with South Africa, Botswana, Lesotho, Nambia, and Swaziland. 

What we do with our internal cash resources is limited to keeping our operations which are all locally profitable afloat and prepared for a turnaround.  What we do with our external cash resources is to decide whether to pursue and fund legal avenues for redress or to make investments in areas we find value - one such investment being Radar Holdings. 

The circumstances in Zimbabwe are quite fluid. Economic policies have proven to be unpredictable if not counterintuitive. With each new policy, the Company has to adjust its outlook and strategy.  At the end of the first six months of our fiscal year, we had continued a string of record earnings, contained costs and brought profitability to Cambria for the first time.  I believe that is an indication that the policies we pursued were sound and our understanding of this economy enabled me to navigate the company into profitability.  The Company has survived what I believe was a chaotic departure from prudent economic policies, and it has done so with a significant net asset base.  The Company is positioned to benefit from a return to a path of economic prudence and take advantage of opportunities created by the current displacements in Zimbabwe's economy.

Samir Shasha

Chief Executive Officer

28 February 2020

Cambria Africa Plc

Audited consolidated income statement

For the year ended 31 August 2019