Chairman’s Statement
Operating environment
The beginning of the financial year was marked by the introduction of the Zimbabwe Gold (“ZWG”) which brought about a measure stability, lowering the rate of inflation during the first quarter. At the same time, the country’s foreign exchange auction system was superseded by an interbank foreign exchange market under a willing-buyer-willing-seller (WBWS) trading arrangement. However, the shortage of foreign currency in the formal banking sector persisted with pressure on the exchange rate resulting in increased insistence on USD settlement.
Accelerated growth in money supply during the second quarter resulted in increased ZWG denominated transactions and widened the disparity between the official and parallel market exchange rates. Where suppliers accepted local currency settlement, they offered shorter trading terms or required prepayments for goods which put a strain on working capital. The exchange rate fluctuations during this period resulted in pricing distortions.
The devaluation of the ZWG towards the end of the financial period in September 2024 managed to reset the market, minimising the differential in exchange rates. However, the measures introduced to preserve the value of the ZWG which include the revision of the standard and statutory reserve requirements tightened liquidity and have adversely impacted on access to funding.
Change in Functional Currency
The multi-currency transactions continue to be dominated by the USD, and this has been confirmed in the monetary policy statements issued by the Central Bank since the prior year. The increased use of the USD in the market has resulted in growth in the Group’s USD denominated transactions, necessitating a review of the functional currency of the Group at the beginning of the period. Based on the review, the Directors concluded that the functional currency of the Group had changed from ZWL (subsequently, ZWG) in prior year to the USD with effect from 1 April 2024.
Changes in the economic environment may alter currency mix and as such, the Group will continue to evaluate the impact of changes in circumstances in the on-going assessment of the Group’s functional currency.
The comparative figures were previously stated in inflation adjusted terms as described in the notes to the financial statements. The effects of hyperinflation accounting in prior years resulted in some distortions to the comparative figures and consequently, the financial statements for the current period are not entirely comparable to the prior period.
Group Performance
Despite the challenges in the trading environment during the half year period, the Group realised growth in both sales volumes and revenues. Sales volumes went up by 27.69% as compared to the prior period while the gross profit margin improved from 16.83% in the prior period to 19.64% in the current period.
The growth in volume was bolstered by a successful OK Grand Challenge promotion which included the OK Mart stores for the first time which resulted in growth in the contribution of bulk sales compared to prior period. Other expenses went up by 16,29% from USD17,3 million in the prior period to USD20,17 million in the current period largely due to the increased cost of energy supply which went up from USD5 million in prior year to USD8,2 million. The cost of electricity was driven by increased tariffs while power outages resulted in increased dependence on back-up power, compounding the effects of the increased cost of utilities in the current period.
The increase in net exchange gains from a net exchange loss position in prior period is attributable to the devaluation of the ZWG to the USD. In spite of the growth in revenue and turn-around of the net exchange loss position to net exchange gains in the current year, profit before tax went down by 30% from USD7,2 million in the prior period to USD5,1 million in the current period. The decline in profit before tax was distorted by the inclusion of net monetary gains of USD26 million in the prior period accompanied by an increase in depreciation and amortisation costs which went up from USD2,5 million in the prior period to USD10,3million in the current period due to the effects of inflation adjustments and remeasurement of the right of use asset at the end of the prior year ended 31 March 2024.
Profit for the year went up by 5% as compared to prior year while the total comprehensive income was lowered by the devaluation of property whose fair value movement was impacted by the change from a local currency valuation adjusted for inflation in prior year to a USD valuation in the current year.
The working capital gap narrowed in the current period, with the current ratio improving from 0.98 in the prior period to 1.1 in the period under review. Credit facilities were utilised in financing the maintenance of property and equipment including renovations of retail outlets.
Directors
During the period under review, the Board welcomed Mrs. Kiitumetsi Zawanda to the Board who joined the Board of Directors with effect from 1 June 2024. Two non-executive directors, Mrs. Rufaro Audrey Maunze-Bhebhe and Mrs. Keresia Mtemererwa-Nyawo retired from the board. The board would like to express sincere appreciation to Mrs. Rufaro Audrey Maunze-Bhebhe and Mrs. Keresia Mtemererwa-Nyawo for their dedicated service and valuable contributions during their tenure.
Sustainability
The Group continues to demonstrate commitment towards attaining sustainability goals which include minimising carbon emissions, managing natural resources and waste reduction. The drive towards sustainability is reflected by the decisions made by the Group including around investment in sustainable energy supply.
Enhancing reporting on our environmental, social and governance (ESG) impact remains a priority, the Board continues to monitor progress in adopting the International Financial Reporting Standards (IFRSs) S1-General Requirements for Disclosure of Sustainability related Financial Information and IFRS S2-Climate-related Disclosures.
Dividend
In order to preserve cash, no dividend has been declared for the half-year ended 30 September 2024.
Outlook
Operationally, power outages continue to present an encumbrance to business operations while liquidity challenges continue to strain the operating environment.
The tax proposals put forward in the 2025 budget statement are likely to drive up costs and lower margins realised on affected product lines such as alcoholic and deli products. Going into the second half of the trading year, cost optimisation and product diversification will remain key priorities in sustaining and enhancing the growth achieved during the period under review.
Herbert Nkala
Chairman
17 December 2024
Related downloads:
OK Zimbabwe – HY2025 Unaudited Condensed Financial Results.pdf