Cambria Africa Regulatory News (CMB)

Cambria Africa Plc

("Cambria" or "the Company")

Trading and operational update

Cambria's subsidiaries are operating at near or above cash flow break-even levels since publication of the Company's mid-year results in February 2020. The Company continues to pursue a defensive strategy to protect its resources and assets.

Supreme Court Award

On 15 July 2020, in a landmark case, the Company was awarded US $31,500 plus interest and costs by the Supreme Court of Zimbabwe. The Company lodged a claim against Nemchem International due to its refusal to settle this debt in foreign currency. The High Court decision in favor of the Company was appealed by Nemchem to the Supreme Court and upheld. The Company has applied to remit the award in foreign currency from its subsidiary accounts in Zimbabwe to Cambria's account in the Isle of Man.

Crystallization of Paynet Debt at Parity

On 18 August 2020, the final tranche of Paynet Zimbabwe's legacy debt lodged at parity with the Reserve Bank of Zimbabwe was funded through FBC Bank. US $1.3 million of legacy debt owed by Paynet Zimbabwe has now been fully expunged in accordance with the Governor's written commitment in March 2019. This amount was carried on Cambria's books at parity to the US dollar. The balance of the Company's legacy debt is carried at the prevailing exchange rate and should it be settled by the RBZ, the difference to parity will be recorded as a profit. Cambria is one of the few companies operating in Zimbabwe which did not receive an adverse audit opinion for its treatment of its FY 2019 accounts. The crystallization of Paynet Zimbabwe's debt at parity validates the unqualified opinion issued by the auditors.

Old Mutual Limited Portfolio Value

On 12 August 2019, the Company purchased 292,547 shares of Old Mutual Limited on the Johannesburg Stock Exchange (OMU:JO) for £350,000. The Company sold 90,000 shares of Old Mutual to finance its arbitration case with respect to Radar Holdings Limited ("Radar") shares and to increase its shareholding in Radar from 8.98% to 9.74% on 28 February 2020. These shares were purchased and removed from the Johannesburg Stock Exchange (JSE) to the Zimbabwe Stock Exchange (ZSE) to guarantee Paynet's pursuit of its bid for shares in Radar. In the event of failing in its bids, the investment in Old Mutual allowed the Company to repatriate these shares to the JSE due to the fungibility of the Old Mutual Shares between LON:OMU, JSE:OMU and ZSE:OMU.

In the course of holding shares in Old Mutual Limited on the ZSE, a number of events have prejudiced the free and fair pricing of Old Mutual Shares on the ZSE. Concurrent with the removal of these shares, the Government of Zimbabwe (GoZ) imposed a three-month vesting period on the ownership of dual-listed shares, particularly Old Mutual. On 12 March 2020, the GoZ announced a 12-month suspension of the fungibility of Old Mutual Shares. On 26 June the GoZ halted trading on the ZSE - announcing that the implied international value of Old Mutual shares was responsible for its faltering currency. On 3 August the ZSE re-opened, suspending all dual listed shares, specifically Old Mutual Limited. At the time of fungibility suspension, the value of the Company's Old Mutual Portfolio was US $589,000 at the Interbank Rate, and at the time of the ZSE's suspension of trading in ZSE:OMU, the Portfolio value had fallen to $292,000.

The Company has been in contact with Old Mutual Limited's Head of Investor Relations and its Head of Legal since 29 July 2020, requesting action on behalf of shareholders on the ZSE. The Company continues to pursue a substantive response and will update its shareholders on its efforts to achieve fair value for its Old Mutual portfolio.

Payserv Africa

Payserv Africa, a wholly owned onshore Mauritius subsidiary of Cambria, owns the Company's substantive intellectual property which was hitherto operated by Paynet Zimbabwe to manage bulk payments on behalf of all banks in Zimbabwe. The software was used to process and clear bulk payments using the RTGS facilities on a straight through (STP) or gross clearance basis. Payserv Africa has been approached by a number of African Central Banks outside Zimbabwe to participate in a bid to process and clear bulk transactions. The outcome of such bids remains uncertain. Payserv has also indicated its willingness to consider licensing its technology to third party entities in Zimbabwe.

Paynet Zimbabwe:

Following the end of Paynet Zimbabwe's bulk payment processing on behalf of EcoCash, the government significantly curtailed the ability of EcoCash to process payments, effecting a daily limit of US $50 per account holder and corporate bulk account holders could only deploy receipted funds by depositing them into a bank account. This validated the Company's decision to suspend its operations on behalf of EcoCash, and underscores its view of a deliberate economic policy to shrink the economy in a bid to tame inflation and control the flow of foreign currency.

AutoPay remains a significant source of operating income supporting the remaining staff of Paynet Zimbabwe. A recent review of pricing has resulted in a substantial increase to the Company which provides outsourced payroll services. The Company intends to continue investing in the expansion of payroll services.

Tradanet, Paynet Zimbabwe's 51% owned subsidiary, continues to provide loan processing services to the country's largest building society, the Central Africa Building Society (CABS). Tradanet was recently awarded a three-year renewal of its contract with CABS. The revenues at Tradanet are highly dependent on the size of the CABS loan book which has significantly shrunk, due to the predominance of loans to government employees who have not received pay rises commensurate with inflation.

Millchem: 

In April of 2020, in response to the COVID-19 Pandemic, Millchem diverted its resources to the production of Hand Sanitizers and disinfection products in a joint venture with the Merken Group, a personal healthcare group based in Zimbabwe. To date, this project is yet to become cashflow positive. The Joint Venture has the immediate capacity to supply the market with an 350,000 hand sanitizer tubes over and above the units currently on sale in supermarkets and drugstores. The sanitizer market in Zimbabwe is crowded but the company hopes its superior product will distinguish itself in the market.

Millchem has supplied value-added ethanol based products over the last 5 years with limited access to foreign currency. The local generation of funds has financed the company overheads while the locally denominated profits have lost value against the US dollar as a result of hyperinflation. As a consequence, management has decided to focus on sanitizer production and reduce exposure to the industrial market. Millchem is in the process of selling excess inventory and non-productive assets through ABC Auctions and reducing its payroll and fixed overheads. We expect the process to be revenue neutral.

Millchem has funded approved intercompany legacy debt of US dollars $416,000 at parity to the Zimbabwe Dollar with the Reserve Bank of Zimbabwe. The value of cash transferred to the RBZ for settlement of this debt is being accounted for at the prevailing exchange rate, and on the Company books at $23,000 as of 29 February 2020 instead of the Company's legal entitlement to receive the currency at 1:1. Should this debt be honored at parity or below the exchange rate, the Company will experience a profit.

Cash Resources and NAV

Excluding the potential market value or compensation for Old Mutual Shares, the Company and its subsidiaries currently hold cash resources of US $1.79 million in accounts in the United Kingdom and Mauritius. The Company reported NAV of $7.17 million (1.32 US cents per share) as of 29 February 2020. The Company expects NAV to remain at or near these levels. Significant components of the NAV include a $2.5 million valuation of Paynet Headquarters and its adjacent plot with main road frontage, and an investment in Radar valued at $1.74 million.

Economic Outlook and Strategy

The COVID trading environment remains fraught with uncertainty and risk, not just in Zimbabwe, but in the region. The financial resources to support the impact of the pandemic is simply non-existent. The newly implemented auction system has produced an exchange rate for the Zimbabwe dollar (ZWL) to the US dollar that has recently fluctuated with less volatility than any major currency to the US dollar. Hence, despite the intentional contraction of the economy to dampen demand for foreign currency, the weighted average auction rate for ZWL doesn't yet reflect its market value or its availability on a willing buyer / willing seller basis.

As a result of the uncertain economic outlook, the Company's Zimbabwe operations have been significantly downsized to contain costs. The Company has engaged the services of ABC Auctions to achieve best value for assets it cannot dispose of on an arm's length basis. The Company's Board of Directors is actively evaluating investment options and strategies in view of the rapidly changing circumstances it is facing.