Chairman’s Statement
Overview
The country’s operating environment was relatively stable compared to the prior year, mainly on account of relaxation of Covid-19 restrictions. Official annual inflation closed the financial year at 72.7%, having declined from 240.6% for March 2021. The Reserve Bank of Zimbabwe (RBZ) foreign exchange auction platform managed to induce stability in the first half of the financial year. There was a marked volatility in the availability of foreign currency on official platforms which resulted in a widening dichotomy between the rates offered on the RBZ auction system and alternative sources of foreign currency. Most market players had to rely on alternative sources of forex which fed into product pricing. The spike in the month-on-month inflation rates during the course of the last quarter of the financial year was evidently hinged on the cost of foreign currency on alternative markets. The scarcity of foreign currency resulted in the growth of the informal sector where suppliers readily access foreign currency cash in an unregulated market format.
The Russia – Ukraine conflict that started towards the end of the financial year resulted in the disruption of global supply chains and increases in energy costs.
The Group’s stores were adequately stocked for much of the financial year, although the delays in the settlement of foreign currency on the RBZ auction system, among other operating challenges, impacted the operations of our suppliers resulting in erratic supply of some key lines.
The Group continued with its store refurbishment programme with makeovers completed at OK Masvingo, OK Queensdale, Bon Marché Avondale, OK Mbare and OK Chinhoyi. The Group opened two new stores during the year, OK Banket and OKmart Chivhu.
Group Performance
Sales volume grew by 22.7% over prior year. In inflation adjusted terms, revenue for the year grew by 34.7% to ZWL 79.9 billion from ZWL 59.3 billion in the prior year. Profit before tax of ZWL 4.8 billion was 38.5% above prior year’s ZWL 3.5 billion while profit after tax grew by 48.9% to ZWL 2.8 billion from ZWL 1.9 billion in prior year.
Overheads grew by 37.0% over prior year. Staff costs, electricity charges, rentals, bank charges and depreciation are the cost lines that contributed most significantly to overheads growth. The increase in staff costs was driven by the imposition of salary and national pension fund increases. In addition, the Group continued to endure excessive intermediated money transfer tax (IMTT) during the year. The increase in the transaction thresholds had a dramatic impact on the competitiveness of the formal retail sector, drives inflation and undermines profitability and attractiveness of Zimbabwe as an investment destination. The Group continues to appeal to the authorities to reduce these transaction thresholds to create an even playing field for the retail trade which will benefit customers. An effective corporate tax rate of 34.3% is unsustainable.
Capital expenditure for the year was ZWL 3.1 billion up from ZWL 2.1 billion in prior year. Most of the capital expenditure was channelled towards store refurbishments and new stores opening.
Sustainable Business Practices
The Group continued to apply the Global Reporting Initiatives (GRI’s) Sustainability Reporting Guidelines as part of its commitment to sustainable business practices. We will continue to uphold these practices and values across our operations to ensure that long-term business goals are achieved in a sustainable manner. The Group ensures that business strategy and practices are aligned with global sustainability standards.
Dividend
The Directors have declared a final dividend of 36.5 ZWL cents and 0.13 US cents per share. A dividend announcement notice was published on Friday 3 June 2022. The expected date of settlement is Tuesday 28 June 2022.
Outlook
The operating environment remains challenging with high inflation levels and exchange rate volatility. Post the end of the financial year, inflationary pressures increased markedly driven by the sharp depreciation of the local currency. The official month on month inflation that had averaged 6.1% for the 6 months to 31 March 2022 shot up to 15.5% for the month of April 2022. In response, the authorities stepped in with various measures which, if successful, will help stabilise the foreign exchange market and tame inflation.
The less than anticipated rains for the 2021/22 agricultural season will affect yields and impact consumer real disposable incomes. The Russia – Ukraine conflict will continue to impact the global economy through increases in energy costs and potential shortages of raw materials in the short term should hostilities persist.
Despite these challenges, the Group continues with its expansion plans, with a number of refurbishments and new stores scheduled for the current financial year. The Group is also upgrading its ICT platforms to improve operational efficiencies and support its innovation thrust.
Covid-19 remains a threat and the Group will continue to implement best practice protocols to ensure the safety of its employees, customers, supplier partners and all other stakeholders.
Directorate
During the first half of the financial year, the Group began a transformative journey of leadership renewal in accordance with the overall succession plan. The Group bade farewell to its long serving stalwarts, Messrs Alex Edgar Siyavora and Albert Rufaro Katsande on 31 March 2021 and 30 June 2021 respectively. With their retirements, Messrs A. E. Siyavora and A. R. Katsande retired from the Board of Directors of the Company. On behalf of the shareholders, Board of Directors, management and staff, I wish to convey the Group’s appreciation for their years of dedicated service to the Group.
On 1 April 2021, the Group welcomed Mr. Maxen Phillip Karombo as Group Chief Executive Officer. Furthermore, Mr. Phillimon Mushosho joined as Group Chief Finance Officer on 1 July 2021. Messrs M. P. Karombo and P. Mushosho both joined the Board of Directors as Executive Directors with effect from their respective dates of appointment. The Board also welcomed Mr. Simon Masanga as a Non-Executive Director on 1 April 2021. Join me in congratulating Messrs M. P. Karombo, P. Mushosho and S. Masanga and wishing them great success in their new capacities.
H. Nkala
Chairman
15 June 2022