TINASHE MAKICHI
OK Zimbabwe Limited has embarked on an expansion drive that will culminate in the construction of new stores and refurbishment.
The group’s capital expenditure in the six months to September 30,2021, stood at ZWL$1bn from ZWL$649m reported in the prior comparative period. Most of the capital expenditure was on store refurbishments.
OK Zimbabwe chairman, Herbert Nkala, said the construction of new stores and refurbishment of existing ones is expected to be completed before the end of the financial year in March next year.
Revenue for the group in the half year to September 30, 2021 grew by 42.2% to ZWL$25.2bn from ZWL$17.7bn in the comparative period.
Profit for the year plunged to ZWL$356.1m from ZWL$1.5bn reported in the prior comparative period.
Overheads grew by 60% 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.
“While the business implemented a raft of cost containment measures, the overhead increases were driven by exogenous factors such as NEC wage adjustment and expansion of IMTT thresholds which adversely impacted the Group’s profitability,” Nkala said.
The IMTT burden on the business grew by 233% to ZWL$450m compared to ZWL$135m for prior year as a result of the increase in tax ceiling from ZWL$25 000 in prior year to ZWL$800,000 per transaction in the current financial year.
The increase in tax significantly eroded the business’ gross margins.
Nkala added that the huge IMTT expense was 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% in the prior year to 39.4% 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.”
Net finance charges during the period increased by 299% as the group increased borrowings for working capital and capital expenditure purposes.
During the period under review, 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 and limited foreign currency availability. Covid-19 lockdown restrictions remained in place at varying levels of intensity throughout the period.
Nkala said the lockdown restrictions impact the business mainly through supply chain disruptions, decline in consumer real disposable incomes and reduced operating hours.
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.
Nkala said sales volumes therefore recovered by 43% over prior year.
