OK invests $1bn in new projects
OK Zimbabwe, the country’s biggest retailer, invested $1 billion in capital programmes during the half year to September 30, 2021, which largely entailed store refurbishments across the country.
This represented a 54 percent growth in capital expenditure compared to the same period last year, as the retail giant positions itself to cash in on the anticipated economic growth being buoyed by the agriculture and mining sectors.
The growth is expected to enhance disposable incomes, which should cascade to the retail sector.
During the first half, the retailer, continued with its store refurbishment programme, with makeovers completed at OK Masvingo and OK Queensdale in the capital Harare.
“The forecast good rains in the 2021/22 agricultural season and positive developments in the mining and manufacturing sectors of the economy, should result in an upturn in real disposable incomes and consumer spending, which presents opportunities for the group.
“Further, the group’s expansion drive continues, with a number of new stores and refurbishments expected to be accomplished before the end of the financial year,” said group chairman Herbert Nkala in a performance update for the half year period.
Market watchers have also placed a bet on consumer oriented stocks like OK Zimbabwe to maintain a growth trajectory being experienced at the moment following recovery from the adverse impacts of Covid-19 induced lockdowns and restrictions which saw trading hours reduced.
Experts in the real estate sector also contend that the retail segment presents opportunities for growth especially in urban centres, as opposed to the commercial office space in central business districts (CBDs) where voids have been prevalent as companies downsized operations or moved to office parks and suburban offices.
For OK Zimbabwe, Mr Nkala indicated more new stores would be presented to the market in addition to store refurbishments as the group consolidates its market position.
Meanwhile, the listed retail giant reported sales volumes for the half year recovered by 43 percent compared to same period in the prior year.
But the group’s performance was weighed by Covid-19 related challenges as well as tax burdens.
“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.
“Covid-19 lockdown restrictions remained in place at varying levels of intensity throughout the period.
“The lockdown restrictions impacted the business mainly through supply chain disruptions,decline in consumer real disposable incomes and reduced operating hours,” said Mr Nkala.
Total revenue grew by 42,2 percent to $25,2 billion from $17,7 billion in the comparative period. Profit before tax went down 66 percent to $798 million compared to $2,4 billion recorded during the same period in the prior year.
Similarly, profit for the period declined by 76 percent to $365 million from $1,5 billion during the comparable prior year period.
Overheads grew by 60 percent over the prior year, mostly as a result of the intermediated money transfer tax — popularly known as the 2 percent tax — staff costs, electricity charges, rentals, bank charges, cleaning expenses and security charges are the cost lines that contributed most significantly to overheads growth.
The increase in tax, Mr Nkala said, 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,” he said.
Business lobbies have also weighed in on the 2 percent tax, calling on fiscal authorities to review its structure to reduce its undesired negative impact on profitability and tax compliant businesses.
Finance and Economic Development Minister Professor Mthuli Ncube has however, admitted Treasury was aware of industry’s concerns and would look into reviewing the 2 percent tax but not immediately as Government still has a lot of projects underway that require funding.
The 2 percent tax has become a significant revenue contributor since it was introduced.-the herald
