Cambria Africa Plc

("Cambria" or the "Company")

Audited FY 2020 Results ("the Results"):

Loss per Share of (0.07) US cents and NAV of 1.18 US cents

Cambria Africa PLC (AIM: CMB) ("Cambria" or the "Company") announces its audited results for FY 2020. Audited Financial Statements are available on the Company's website (www.cambriaafrica.com) and will be sent to shareholders tomorrow.

As a result of the publication of the Audited Financial Statements the Company's ordinary shares will be restored to trading on AIM at 7.30 a.m. on 17 June 2021.

A Loss Attributable to Cambria Shareholders of $408,000 (0.07 US cents per share) was recorded for FY 2020. The Company's subsidiaries in Zimbabwe continued to operate above breakeven in both EBITDA and accounting profit despite the significant shrinkage in its revenue footprint by 74% from US $4.99 million in 2019 to US $1.32 million 2020.  The Company's subsidiaries are expected to continue reporting at breakeven levels in FY 2021.  The bulk of the Company's FY 2020 consolidated losses stem from Central Costs of USD $224,000 (4% above 2019 levels), the impact of foreign currency translation losses on monetary assets, and a drop in the value of marketable securities.

Net Equity (NAV) fell by 13% from US $7.39 million in FY 2019 to $6.4 million FY 2020 (1.18 US cents per share). The bulk of this loss was attributable to foreign currency translation losses of $511,000, and impairment to the carrying value of Radar Holdings Limited and Old Mutual Limited shares. 

FY 2020 Results highlights:

-      Group Highlights:

·      Net Equity (NAV) decreased by 13% from US $7.39 million (1.36 US cents per share) to US $6.4 million (1.18 US cents per share).

·      Group Finance costs rose by 17.6% to $60,000 in FY 2020 from $51,000 in FY 2019 after falling 80% from $252,000 in FY 2018.  Finance costs are expected to decrease significantly in FY 2021 following the reduction of loans outstanding by over $400,000 after the end of the reporting period.

·      Revenues declined by 74% to $1.32 million while operating costs declined by 61% to $845,000. As a result of careful cost management, the Company has managed to avoid significant losses from the shrinkage of its revenue as a consequence of COVID and its inability to regain traction for its bulk payment and clearing software for banks.

·      Cambria's Attributable PAT (Profit After Tax) turned negative at $408,000 (0.07 cents per share) as operations edged towards breakeven and Central Costs associated with its listing and interest expense rose marginally by 4% from $216,000 to $224,000.  The balance of the loss was associated with hyperinflationary adjustments, and foreign currency translation, the loss of value in marketable securities (Old Mutual Limited) and a fair value adjustment to our investment in Radar Holdings Limited.

·      Consolidated EBITDA before fair value adjustments to investments and marketable securities remained in positive territory at $160,000 but declined by 92% from $2.05 million in FY 2019.

·      Cambria's central costs increased by $8,000 to $224,000 in FY 2020. Cambria's CEO and Directors rendered services to Cambria without compensation during FY 2020.

·      The Statement of Comprehensive Income includes a foreign currency translation adjustment (loss) of $511,000 attributable to Cambria.

-      Divisional Highlights

·      Payserv Africa's subsidiary, Paynet Zimbabwe, attempted to recover from its dispute with Zimbabwe banks by providing services to EcoCash.  Paynet withdrew its services to EcoCash when it became apparent that transaction charges had diminished to an uneconomic level.  Subsequent and unrelated to Paynet's withdrawal, EcoCash and other mobile payment operators were barred by the authorities from participation in bulk payments. 

·      Tradanet (Pvt) Ltd, Paynet Zimbabwe's 51% held subsidiary, continued to provide loan management services to CABS, the country's largest building society.  Due to the devaluation of the country's currency from ZWL10.71/USD on 31 August 2019 to ZWL 83.4/USD on 31 August 2020, the salary-based loans and the income from loans, revenues and profits while above breakeven, fell to negligible values in US dollar terms.

·    Autopay, Paynet Zimbabwe's payroll processing division, while mending fences with one of its primary suppliers Paywell South Africa, and maintaining profitability, saw a significant shrinkage in its revenue base during the COVID pandemic and lost customers to former employees who had been granted Paywell licensing rights. Subsequent to the end of the Fiscal Year, Autopay has hired a new management team with extensive payroll experience and established an independent contract relationship with payroll managers on a pure profit share basis. 

·    Millchem exited the industrial chemical sector and focused on the sanitizer sector.  While its anticipated penetration in this market through a joint venture with Merken was not as lucrative as hoped, the new focus remains marginally profitable.

Net Equity (Net Asset Value)

Given the lag between the publication of these results as a result of the impact of COVID and the continued and significant shrinkage of the Company's subsidiary operations, the balance of the RNS will focus on discussing prospects for its subsidiaries in FY 2021 and changes in the Company's NAV since FY 2019 and the expected impact on NAV into FY 2021.

Components of Loss to NAV in 2020

The Group reported a drop of $967,000 in NAV to $6.4 million (1.18 US cents per share) in August 20, compared to $7.39 million (1.36 US cents per share) at 31 August 2019.

This decrease has been caused by the following material factors:

-       Fair value adjustment to the indirect investment in Radar from 40 US cents to 35 US cents per share resulting in a $229,000 reduction to NAV net of minority interests.

-       Reduction in the carry value of Old Mutual Limited shares by $50,000 which were suspended on the Zimbabwe Stock Exchange (ZSE).

-       Foreign Currency Translation loss of $511,000 from the deterioration of the official bank rate from ZWL 10.71/USD on 31 August 2019 to 83.4/USD on 31 August 2020. The components are as follows:

·      $,200,000 translation loss by applying IAS 29 (Financial Accounting in Hyperinflationary Economies) - This adjustment effectively reduced subsidiary profits of US $133,000 to a loss of US $67,000 when the monetary assets generated were translated at ZWL 83.4/USD. 

·      $255,000 translation loss against ZWL denominated monetary assets carried forward from the FY 2019 Statement of Financial Position. 

·      $56,000 translation loss against funds deposited with the Reserve Bank of Zimbabwe (RBZ) and denominated in ZWL at parity to the US dollar against a time-indeterminate receivable of US $1.39 million from the RBZ.

·      A reduction of $74,000 caused by application of IFRS 10, paragraph 23 on the additional interest acquired in Radar.

·      Central costs of US $224,000 including interest charges of US$ 47,000 and listing related expenses of US$103,000.  The CEO and Directors continue to serve the company without compensation and to reduce interest costs, the majority of loans outstanding to VAL have been repaid (US$ 400,000) subsequent to the end of the Fiscal Year.

Components of NAV at 31 August 2020

The Group NAV of $6.4 million as at the end of FY 2020 consists of the following tangible and intangible assets:

Building and properties valued at $2.5 million.  Management believes this is a realizable value in US dollars for the Paynet office headquarters building and the prominently positioned plot adjacent to it.  Management believes this valuation remains valid and realizable as at the date of this publication

Indirect shareholding of 9.74% of Radar Holdings Limited (4.98 million shares) valued at US $1.743 million (net of minority interests) or 35 US cents per share.  Radar announced a NAV per share as at the end 30 June 2020 of ZWL 3,821.  As at 30 June, 67 US cents at the official rate of 57.3582 ZWL/USD and 38.21 US cents per share at the parallel rate of 100 prevailing on that date according marketwatch.co.zw archives.  Based on explanation of the adverse audit opinion issued by PWC in respect of the Radar June 2020 Financial Statements, we believe the most accurate valuation of Radar's NAV in USD is to divide by the official rate of ZWL/USD since the official rate was used to obtain the ZWL rates in the Radar Statement of Financial Position.  Either way, the per share valuation of 35 US cents on Cambria's Statement of Financial Position is conservative. An excerpt from PWC adverse opinion on the Radar's June 2020 Financial Statement follows (emphasis added):

Valuations rely on historical market evidence for calculation inputs. …market evidence for inputs on buildings including transaction prices for comparable properties, rentals, and costs of construction were available in US$ at 30 June 2019 when the independent valuer performed the valuation. The directors performed the valuation as at 30 June 2020 and used the same USD inputs. In order to determine the ZWL$ values of the property and equipment and investment property as at 30 June 2020, US$ inputs were used and then translated into ZWL$ using the closing interbank exchange rate. The application of a conversion rate to US$ valuation inputs to calculate ZWL$ property value is not an accurate reflection of market dynamics as the risks associated with currency trading do not reflect the risks associated with property trading. In addition, as at 30 June 2020 the US$ inputs for valuation were translated using the interbank rate which is not considered an appropriate spot rate for translation as required by IAS 21. It was not practicable to quantify the financial effects of this matter on the financial statements.

While the above is cryptic, management's conclusion is that the valuation started in US dollars and was converted at an inflated value for ZWL - hence should be converted back by the same inflated value (57.3582 ZWL/USD) yielding a maximum possible value of Cambria's indirectly held Radar Shares of US $3.34 million.  This optimistic valuation should be tempered by the fact that Cambria remains a minority shareholder in Hinshaw.  Management believes that this valuation continues to be realizable as at the publication of this annual report.

USD Cash and Cash Equivalents -  cash net of liabilities outside Zimbabwe totalled $1.4 million at the end of FY 2020 and this number is $1.3 million as at the 31 May 2021.  A further US $50,000 was held in cash and US dollar denominated accounts in Zimbabwe.  The reduction of debt to VAL by $400,000 after the end of the financial year will significantly reduce interest costs and protect the remaining cash balances outside Zimbabwe. The liquidation of various assets which commenced at the beginning of FY 2021 should net the company a minimum of US $130,000.  In valuing the Company's realizable NAV, we are placing a zero value on the remaining net monetary assets in Zimbabwe whose value will be to finance the majority of the subsidiary working capital.

Old Mutual Limited shares - the Company holds 204,047 Old Mutual Limited common shares suspended on the Zimbabwe Stock Exchange (ZSE) and valued on its FY 2020 Statement of Financial Position at US $200,000 based on the closing price of Old Mutual Limited on the ZSE at suspension.  Should the Company be able to repatriate these shares to Johannesburg Stock Exchange where it purchased them or UK where these shares continue to trade, their value as at 28 May 2021 based on 73.34 p (LSE) per share is the equivalent of US $211,500.  The Company has expressed its displeasure with the lack of proactive shareholder support on the part of Old Mutual Limited (OMU) to reverse the probably illegal suspension of Old Mutual shares on the ZSE which has been tantamount to the confiscation of Cambria's funds. The Company has also approached the Zimbabwe Ministry of Finance and the Reserve Bank of Zimbabwe to request that it be allowed to repatriate the shares it brought into the country to guarantee its intentions to increase its direct and indirect shareholding of Radar Holdings.

Blocked/Legacy funds of US $1.39 million.  This asset sits on the books at approximately $16,000 due to the official devaluation of the ZWL from parity to 10.71/USD to the current level of 85/USD.  Management successfully negotiated with the Reserve Bank of Zimbabwe the payment at parity of $1.25 million and carried the same on its books at the end of FY 2019 because Cambria had a time determinate commitment from the Reserve Bank Governor, Dr. John Mangudya, which was honoured in full during FY 2020.  Hence there is reason to believe that the appropriate and conservative approach of converting these blocked funds at the prevailing exchange rate may be a significant underestimate of their realizable value.  The Company intends to negotiate with the RBZ to achieve a win-win outcome.

Goodwill of US $717,000.  The Company has a goodwill value of $717,000 on its Statement of Financial Position at the current time.  The Company believes this is a fair assessment of its intangible assets. Despite the shrinkage of Paynet's operations, it continues to maintain turnaround opportunities in Tradanet and Autopay when salary levels and market penetration recovers.  Further, it has been apparent that Paynet's technology which was deployed by the majority of the country's banks to process bulk salary and merchant payments as well as to clear large transactions between banks on a gross settlement basis, is yet to be substituted by a robust inter-platform technology.  This FinTech which processed close to 25 million transactions annually and produced revenues of over $7 million per annum remains the most cost-effective solution for the banking industry.  The Board of Paynet has approved licensing an unlabelled version of the product if favourable transaction terms can be established with a reputable licensor. 

The above analysis results in an estimated $6,756,000 (1.24 US cents per share) in NAV and $6,039,000 (1.11 US cents per share) in tangible NAV ((excluding Goodwill).  This estimate can be adversely or positively impacted by the following factors:

-       Central costs including interest expenses.  These costs will fall in FY 2021 by at least $50,000 from current levels of $224,000 in FY 2020.

-       Commercial Property Values in Zimbabwe.  Currently property values in US dollars have been buoyant and this may well not be reflected in the Company's property valuations.  Much will depend on government's economic and political policies post-COVID lockdowns.

-       Recovery of Legacy/Blocked Funds at or near parity - this could add 10 US cents per share to NAV.

-       The value of Radar shares. The Company believes that 35 US cents is a fair realizable value for Radar shares but as this is highly corelated to residential property values and activity - much of which is fuelled by diaspora funds - post COVID these values can increase dramatically. 

-       Monetizing of Payserv Africa's intellectual property through licensing or equity transfer.

Based on the above analysis the Company believes its tangible, intangible and realizable NAV are not subject to significant negative shocks and probably the beneficiary of some positive outcomes. 

Chief Executive's Report

I would like to use this opportunity to reflect on the history of VAL's investment in Cambria, the outlook for Zimbabwe's economy where a significant part of Cambria's assets are held, and finally what I believe that Cambria's shareholders can look forward to.

With the benefit of hindsight it is still hard to know if the loss of business and shareholder value that Cambria has suffered since the introduction of a local currency in February 2019 could have been avoided.  I have personally and beneficially invested US $5.5 million in Cambria Africa since VAL's subscription in 2015 and I know many shareholders have also increased their shareholdings during my tenure in tandem.  Today the market capitalization of the Company barely hovers around US $2.5 million despite a NAV that is more than double that figure.

Cambria remains with some hard assets and cash, as well as what I believe continues to be valuable intellectual property.  While I continue to believe we have a cause for legal action for the events which eliminated us from direct participation in Zimbabwe's payments market, the cost-benefit given our financial resources must be questioned without the benefit of litigation finance.

The original intention of VAL subscribing to Cambria's shares was to leverage an expected resurgence in Zimbabwe's economy, buoyed by the prospects of economic and political reform in 2017.  Personally, I remain the beneficial owner of a number of properties, one of which is Leopard Rock Hotel - all these properties are in Zimbabwe.  My cash resources have fallen to six figures. The point is not despair.  The point is that having never taken compensation from Cambria, my interests have always been and continue to be aligned with all Cambria shareholders.

With COVID impacting employees and businesses across the world, Zimbabwe was no exception.  On the other hand nothing that convinced me of the potential that Zimbabwe holds for an explosive economic recovery has changed.  The country's natural and human resources are beyond description.  If the correct economic prescription is applied, its potential will certainly be realized.  On a personal note, I have always felt this would only start to happen once Zimbabwe is invited to and accepts to join the Southern African Common Customs Union (as opposed to free trade pacts). The investment benefits to Zimbabwe would far outweigh the costs of such an outcome, which I hope would be an eventuality.  Further, truly embracing market economics and preventing anti-competitive behaviour, such as those which put Paynet out of payments business despite its clear advantages for the industry and the consumer, would go a long way in re-establishing long-term investor confidence as opposed to short term opportunism.

I have always remained optimistic that the correct economic solutions will prevail. Unfortunately, the gulf between the market value of Zimbabwe's recently adopted currency, the ZWL and the "auction rate" has perpetuated.  The auction rate has unrealistically been managed at a less than 2% variance since the end of Cambria's FY 2020 while the market rate has risen by 25% (an achievement in itself).  An auction is meant to allocate resources through a market mechanism and by definition should have minimal regulation or interference with the process.  Clearly, the "auction rate" is an allocation at a fixed band based on established priorities  as opposed to a market clearing mechanism which would bring the needed efficiencies to trade and finance.  Recent legislation limiting the ability of merchants to price goods in US dollars at a rate other than the "auction rate" only emphasizes this incongruity and will exacerbate it. 

In my last report, I stated, "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." This statement remains as valid now as it was then.  The special interests which skew this allocation are not justification enough for holding off the prosperity of this otherwise thriving and productive nation.

Despite the failure to leverage market forces to strengthen its economy, Zimbabwe has achieved an admirable record for combatting COVID as the virus devastated its neighbour, South Africa.  It has been a leader on the continent in making vaccinations available to its citizens and residents.  The country remains in many ways a star of Africa, with agriculture and mining resurging.  But for the twist of fate that COVID brought, tourism would also have become an ever stronger pillar of the nation's economy.  Agriculture and Mining have contributed significantly to aggregate demand and created new opportunities in the market.

In this context, while it may be too late to impact the earning potential of its subsidiaries, Cambria may well succeed in realizing better values for its assets, while finding opportunities to increase shareholder value and liquidity.  This would be a consequence of possible mergers, licensing, joint ventures, and investments which are still within the realm of possibilities.  Since the end of FY 2019 the focus has been to stop the downsizing from causing a haemorrhage of expenses. We have successfully - very successfully achieved that objective considering the magnitude of the drop in our revenues.  We remain with substantial cash and near cash assets and depending on the opportunities which present themselves, we can invest these assets and more. 

I am mindful that realizing our NAV and distributing it might be an option, but I'm personally loathe to removing the potential liquidity and access to investment that a public listing holds.  As the Chief Executive of the Company and its largest beneficial shareholder, I fully intend to exhaust all avenues to create value for all shareholders while remaining listed.  I intend to work closely with our board which has seen Cambria beat back years of losses and emerge into profitability.  To this day Cambria remains EBITDA profitable - a feat it simply never achieved before VAL's involvement.   The Company intends to jealously guard and monetize its remaining asset base while exhaustively searching for possible investments which dislocations and disruptions create.

So while we have significantly downsized, because we have had to, and we have emphasized the Company's NAV  in this report, we have neither withdrawn from, nor do we intend to withdraw from actively pursuing investments and value maximizing strategies.  As fellow shareholders, we remain with real and realizable value and many windows of opportunity which can arise from our cash holdings.

Samir Shasha

16 June 2021

Cambria Africa Plc

Audited consolidated income statement

For the year ended 31 August 2020