High cost of doing business worries OK Zim
OK Zimbabwe says that as a consequence of exchange rate deterioration, the cost of doing business has continued to increase to unsustainable levels.
The retail giant, in its half-year financials for the period to September 30, 2023, said the 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 percent for formal retail caused a 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 expectations, resulting in a volume decline of 22,6 percent compared to the same period last year,” said Herbert Nkala, the group’s chairman, in a statement of financials.
He said suppliers resorted to shortened trading terms as they tended to hedge against exchange rate movement-induced losses, which resulted in high incidences of stockouts.
In the period under review, operating costs increased by 886,83 percent, mainly driven by utilities and backup power expenses, transport and delivery, maintenance expenses, and labour costs.
OK Zimbabwe’s revenue for the half year grew by 60,38 percent to $727,9 billion from $453,8 billion in the comparative period.
Profit before tax increased by 62,74 percent to $43,4 billion. However, the group incurred significant exchange losses on its foreign-denominated liabilities and renegotiated foreign currency-based leases to reduce the impact of exchange losses going forward.
“Post-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,” said Nkala.
The company’s profit after tax for the period was $21,2 billion, while in historical terms, the net loss was $9,2 billion.
Nkala said 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 percent.
During the interim period under review, capital expenditure grew by $16,8 billion, and most of the capital expenditure was channelled towards the new Bon Marche Marondera store and a number of new Alowell Pharmacy outlets that are now fully operational in store at selected branches.
Nkala said 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.
He said the group has implemented cost optimisation initiatives across the operations, streamlining processes, renegotiating supplier contracts, and implementing efficiency measures to reduce overhead.