Low disposable incomes hit Meikles

Listed hospitality and retail group, Meikles Limited, reported an inflation adjusted net profit after tax of $2,7 billion for its half year ended September 30, 2022 as low disposable incomes take toll on the business.

The performance in the period under review was 56 percent down from the 2021 comparative period.

Meikles chairman, John Moxon said; “Exchange and monetary gains of $2,9 billion and $6,8 billion contributed significantly to the group’s financial performance.”

Banks have been negotiating with the Reserve Bank of Zimbabwe (RBZ) on interest rates saying it will be difficult to fund growth at such interest rates of 200 percent.

Economist, Dr Prosper Chitambara said; “It is true that the tight monetary stance has strained aggregate demand in the economy and if sustained it will affect economic output growth in the long run. The tight monetary stance will exacerbate the already dire growth situation as we know growth is already going to be lower than it was last year.”

Otherwise, net operating profits fell by 132 percent to a loss of $1,28 billion, while gross profits gained 34 percent to $27,8 billion.

The group’s total revenues stood at $129,3 billion as the supermarket segment recorded revenue growth of 68 percent to $127,1 billion.

Sales volumes grew 38,5 percent during the first quarter of the period, but declined by 4,4 percent in the second quarter to leave overall growth at 15,46 percent. The group attributed the decelerated growth to reduced consumer spending due to the restricted local currency liquidity.

The hospitality segment reported revenue growth of 244 percent to $1.3 billion, as room occupancy increased from 12.9 percent to 32.5 percent during the period.

Meikles’ operations generated net cashflows of $3,9 billion, and net capital expenditures for the period stood at $3,6 billion.

Total assets stood at $84,1 billion, with cash holdings of $17,5 billion and inventories of $18,7 billion. Total liabilities stood at $30,5 billion, with borrowings of $576,4 billion and trade payables of $19,7 billion.

The group supermarkets segment saw its inflation adjusted profits decline by 3 percent to $2,9 billion during the half-year. A new outlet was opened during the period at the recently opened Highlands shopping centre.

The hotels segment recorded a 161 percent rise in profits to $1,04 billion.

During the period under review, the board was presented with an opportunity to unlock the value of the investment in Mentor at an attractive price when a third party offered to purchase the facility.

As a result, the 35 percent shareholding in Mentor was sold for US$19,08 million and the sale resulted in the investment being uplifted from the previous carrying value to the amount of the sale proceeds.

The anticipated upside potential of Mentor had not been realised, consequently, the investment was sold in March 2022.

According to Moxon, the group realised a gain on disposal of US$14,5 million and now the directors are evaluating options on reinvesting the sale proceeds.

Looking ahead, the group expressed confidence in the adequacy of its financial resources to see out planned capital projects across its subsidiaries. Works are ongoing for the opening of three new stores planned for the first quarter of next year. The first phase of hotel refurbishments was completed during the period.

The group also commenced refurbishments on its Robert Mugabe Road property during the period, and expects to complete the project in the first quarter of next year. Further refurbishments of all remaining properties is expected in the next financial year.

Meikles declared a dividend of US cents 0,25 per share payable on December 15.

It is a set of financial results that highlights the short-term dangers facing the group as beyond the dampened consumer sentiment, exchange rate related price distortions are likely to drive consumers to informal markets.

This will likely constrain the group’s US dollar takings, which may be a concern given the group’s significant trade payables. It could require the group to focus more of its financial resources on maintaining working capital rather than capital investments.

In the circumstances, it does raise some slight concern that the group opted to declare a US dollar dividend. The ongoing electricity supply disruptions are also likely to pressure the group’s profit margin margins.

In their outlook, Moxon said; “There are challenges in the environment with inflation, both local and imported and the continued depreciation of the local currency.”

Despite this, the group believes that it is well positioned internally for the forthcoming financial year, both in terms of profit growth and financial strength.-ebusinessweekly