On behalf of the Board of Directors, l am honored to present the OK Zimbabwe Limited Group (“the Group” or “the Company”) financial results for the half-year ended 30 September 2023 (“HY24″) to our esteemed shareholders. These results come at a time when the economy has suffered strong headwinds which were further compounded by the rapid exchange rate depreciation. The reporting period opened with the official Reserve Bank of Zimbabwe Auction Rate at ZWL 929.86 and closed at a rate of ZWL 5,466.74. This rapid depreciation of the local currency caused some sharp price increases which in turn resulted in consumers suffering depressed affordability. The continued mandatory use of the official exchange rate with a capped margin of 10% for formal retail caused significant loss of volumes to the informal sector which enjoyed more exchange rate flexibility. Consequently, the Group experienced weakening consumer demand during the first half, operating at volumes that were below expectation resulting in a volume decline of 22.6% compared to the same period last year. Suppliers resorted to shortened trading terms as they sort to hedge against exchange rate movement induced losses which resulted in high incidences of stock outs.
The commentary on the financial performance is based on inflation adjusted results. Historical cost figures are included as supplementary information alongside the inflation adjusted results to enhance comprehension and analysis.
Revenue for the half year grew by 60.38% to ZWL 727.9 billion from ZWL 453.8 billion in the comparative period. In historical cost terms, revenue grew by 473.46% to ZWL 541.3 billion from ZWL 94.4 billion.
As a consequence of the exchange rate deterioration, the cost of doing business continued to increase to unsustainable levels. In historical cost terms, operating costs increased by 886.83% mainly driven by utilities and backup power expenses, transport and delivery, maintenance expenses and labour costs.
Profit before tax for the period increased by 62.74% to ZWL 43.4 billion (2022: ZWL 26.7 billion) translating to a profit margin of 5.97%. In historical cost terms, loss before tax was ZWL 8.3 billion (2022-profit: ZWL 3.5 billion). The Group incurred significant exchange losses on its foreign denominated liabilities and leases amounting to ZWL 32.4 billion which negatively impacted on profitability. Post the reporting period, the Group began the process of liquidating foreign currency denominated liabilities and renegotiating foreign currency based leases to reduce the impact of exchange losses going forward.
Profit after tax was ZWL 21.2 billion (2022: ZWL 13.9 billion} whilst in historical cost terms, the net loss was ZWL 9.2 billion (2022-profit: ZWL 2.2 billion).
The Group utilised credit facilities to fund its strategic growth initiatives in accordance with its medium to short-term growth plans and this resulted in the net finance charges increasing by 63.86%.
Capital expenditure for the half year grew to ZWL 16.8 billion (2022: ZWL 7.4 billion). Most of the capital expenditure was channelled towards the new Bon Marché Marondera store and a number of new Alowell Pharmacy outlets that are now fully operational instore at selected branches.
During the period under review, Mr Simon Masanga retired from the Board of Directors. I take this opportunity on behalf of the Board of Directors to thank Mr Masanga for his invaluable contribution to the company and wish him well in his future endeavours.
Sustainability remains at the core of the Group’s Corporate Strategy with emphasis on Environmental, Social and Governance (ESG) priorities, including addressing climate change, managing natural resources, waste reduction, and supporting sustainable farmer livelihoods. We have intensified our efforts regarding preservation of the natural environment, reducing waste, and reducing our carbon footprint. Although climate change and other environmental topics remain a priority, this is not to the exclusion of societal factors. Providing a safe and supportive working environment, access to learning and development opportunities, and encouraging diversity and inclusion at all levels received attention and focus during the reporting period.
No dividend has been declared for the half-year ended 30 September 2023.
We welcome the Monetary Policy Commitee recommendation to remove the 10% margin cap on the instore exchange rate and the removal of IMT tax on card transactions for our customers. These measures will go a long way to remove the price distortions brought about by the uneven exchange rate disparities and this should result in lower prices for the consumers. However, we await the regulatory provisions that will give legal effect to the recommendations.
Management has put in place a comprehensive business and volume recovery plan whose short and medium term objectives are to restore the business to sustainable growth and profitability.
The Group has implemented cost optimisation initiatives across the operations, streamlining processes, renegotiating supplier contracts and implementing efficiency measures to reduce overheads.
14 December 2023