OK Zim sinks $1bn into store upgrades
SUPERMARKET retailer OK Zimbabwe says it spent a total of $1 billion on store refurbishments during the six months to September 30, 2021, compared to $649 million in the same period last year.
Mr Herbert Nkala, the OK board chairman, said the group increased borrowings for working capital and capital expenditure purposes.
“We continued with the store refurbishment programme, with makeovers completed at OK Masvingo and OK Queensdale during the period,” he said.
Mr Nkala said during the period under review, the operating environment was less turbulent than in the comparative period the prior year as evidenced by receding inflation and relative exchange rate stability.
Official inflation progressively eased during the period, reaching a low of 50,2 percent in August 2021 before marginally increasing to 51,5 percent in September 2021.
Nonetheless, Mr Nkala said the group faced a number of challenges during the period, key among them being spikes in Covid-19 infections, high interest rates, excessive levels of intermediated money transfer tax (IMTT) and limited foreign currency availability.
He noted that the impact of the restrictions was, however, less severe as the business community was better prepared to respond to lockdowns than in prior years at the onset of the pandemic.
“As a result, sales volumes, therefore, recovered by 43 percent over prior year,” he said.
The retailer’s revenue for the half year grew by 42,2 percent to $25,2 billion from $17,7 billion in the comparative period while profit before tax was $798 million and profit after tax of $356,1 million.
The group’s overheads grew by 60 percent
over prior year.
“Intermediated money transfer tax (IMTT), staff costs, electricity charges, rentals, bank charges, cleaning expenses and security charges are the cost lines that contributed most significantly to overheads growth,” Mr Nkala said.
He said while the business implemented a raft of cost containment measures, the overhead increases were driven by exogenous factors such as national employment council wage adjustments and expansion of IMTT thresholds which adversely impacted the group’s profitability.
Mr Nkala noted that the IMTT burden on the business grew by 233 percent to $450 million from $135 million for prior year as a result of the increase in tax ceiling from $25 000 in prior year to $800 000 per transaction in the current
financial year.
“The increase in tax significantly eroded the business’ gross margins. In addition, the huge IMTT expense is not tax deductible and this further compounded the tax burden on the business.
“Resultantly, the effective tax rate for the Group increased from 27,4 percent in the prior year to 39,4 percent recorded in the first six months of the financial year.
“We urge the fiscal authorities to review the structure of this tax so as to reduce its undesired consequences on tax compliant formal businesses,” he said.
Net finance charges increased by 299 percent as the group increased borrowings for working capital and capital expenditure purposes.
The Group is confident of recovery and growth prospects in the remainder of the financial year.