Companies

Falling disposable incomes hit OK Zim

…FY 2019/20 volumes fell 15%

PHILLIMON MHLANGA


Declining consumer spending owing to tough economic conditions constrained listed retail giant OK Zimbabwe’s volumes, which declined 15.7% in the 12 months to March 31, 2020 despite stores
being adequately stocked.


Consumers continued to suffer as real disposable income per capita is not keeping up with inflation.

Consequently, retail trade in Zimbabwe remained very difficult.


Household spend reflects living standards, meaning the fall in real disposable income is a clear evidence of declining wealth and lower living standards of most Zimbabwean over the last 12 months.


At the end of OK Zimbabwe’s financial year in March 2020, annual inflation
was at 676.39% compared to 66.80% for the same period the previous year.

However, in May, annual inflation stood at 786%, meaning consumers are
now facing increased pressure to cut back on disposable purchases.


“Despite the effects of the drought and shortage of foreign currency, our stores were adequately stocked for a significant part of the year thanks to the support of our supplier partners. After reporting a volume retreat
of 23% at half year, we ended the year with the sales volume deficit narrowing to 15.7%,” OK Zimbabwe board chairman Hebert Nkala said.


The company also posted a ZWL$1.4m net monetary loss.


The reasons consumers are taking less money home is because salary increases have been delayed while prices were skyrocketing.


Prices are linked to foreign currency exchange rates which continued to be unstable due to the shortages of foreign currency and hyperinflationary
conditions.


Zimbabwe experienced widespread food shortages following the 2018/2019
drought which was further exacerbated by poor yields in the current season.


In addition, the poor agricultural output combined with fuel and electricity power deficits worsened the overall economic performance during
the year.

Foreign currency shortages worsened as the year progressed, leading to a slowdown in the importation of both essential capital goods
and merchandise either directly or through supplier partners.


This shortage in foreign currency led to a runaway exchange rate which triggered rapid price increases of goods, and the resultant inflation eroded consumers’ real disposable incomes and demand.


Overheads grew 427%.


“Generator fuel costs for alternative power, electricity costs, maintenance costs and spares, bank charges and rentals are the major overheads
growth drivers,” Nkala said.


“Significant increases were noted in expense lines directly linked to revenue.”


Despite the harsh and unstable economic environment, revenues for
OK Zimbabwe grew 20% to ZWL$10.3bn during the reviewed period from
ZWL$8.6% recorded in prior year, driven entirely by inflation.


Profit increased 38% to ZWL$586.6m from ZWL$426.3m.


Total assets stood at ZWL$2.93bn during the reviewed period from
ZWL$2.53bn.


Nkala said internally generated funds were adequate to fund working capital and capital expenditure requirements.

Consequently, no borrowings were utilised during the year.


On the outlook, Nkala said the prospects in the short to medium term will depend on the duration and severity of the Covid-19 pandemic which will
impact the timing of the return to full normalcy of operations.


The Group is operating during the lockdown period, albeit for reduced trading hours.


This will likely result in sales volumes for the first quarter of the current financial year declining significantly due to impacts from the Covid-19
pandemic, Nkala said.


He added that the group takes the safety of its staff, customers, suppliers and other stakeholders seriously and will therefore continue to follow
the guidelines from authorities for measures that will ensure their safety.

Management have implemented measures to ensure viability of operations
and will evolve these measures as the uncertain environment demands.
“The Covid-19 pandemic has disrupted supply chains and the group will work closely with suppliers to ensure adequate product supply.

Hyperinflation and a constrained sales performance make cost control a key area of focus for management in order to protect margins,” Nkala
said.

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