OK Zimbabwe inflation adjusted first half profit declined 76.55% to ZWL$356.11 million from ZWL$1.51 billion in the same period last year on salary adjustments and excessive levels of intermediated money transfer tax (IMTT).
In February 2021, the Zimbabwe National Chamber of Commerce bemoaned that the IMTT remains an albatross, 2% tax should be redesigned so that it can be allowed as an expense for formal business.
The IMTT is collected on a range of financial transactions such as direct debits, online and mobile money transfers, payments to suppliers, loan and interbank transfers and any other funds transfers.
Chairman Herbert Nkala, in a statement, said the operating environment was less turbulent than in the comparative period as evidenced by receding inflation and relative exchange rate stability. Official inflation progressively eased during the period, reaching a low of 50.2% in August 2021 before marginally increasing to 51.5% in September 2021.
But the retailer was not spared from the Covid-19 induced lockdowns, high interest rates and limited foreign currency availability.
As a result of the lockdown restrictions the business experienced 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. Sales volumes therefore recovered by 43% over prior year,” he said.
Inflation adjusted revenue surged by 42.2% to ZW$25.2 billion from ZW$17.7 billion in the comparative period. Profit before tax declined to ZW$798.0 million from ZW$2.4 billion in the same period last year.
As expected due to inflationary pressures in the market, overheads grew by 60% over prior year. IMTT, staff costs, electricity charges, rentals, bank charges, cleaning expenses and security charges are the cost lines that contributed most significantly to overheads growth, according to the chairman.
“Whilst 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.”
The IMTT burden on the business rose twofold to ZW$450 million from ZW$135 million in prior year as a result of the increase in tax ceiling from ZW$25 000 in prior year to ZW$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,” he said.
Resultantly, the effective tax rate for the group increased from 27.4% in the prior year to 39.4% recorded in H1.
“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 increased threefold as the group increased borrowings for working capital and capital expenditure purposes.
Capital expenditure surged to ZW$1.0 billion from ZW$ 649 million in the same period in the prior year. He said most of the capital expenditure was on store refurbishments. Makeovers were completed at OK Masvingo and OK Queensdale during the period.
“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,” he said.
In the outlook, the group is confident of recovery and growth prospects in the remainder of the financial year.
“The forecast of 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.”
It declared an interim dividend of 21 ZW$ cents per share to be paid to the shareholders on or about the 17th of December 2021-HARARE