By ETimes
Financial Performance Highlights
- ZSE listed retail and hospitality group Meikles Limited reported an inflation adjusted ZWL$9.6 billion profit in its half year ended 30 August 2022. The performance was a 30% decline from the comparative 2022 period.
- The groups operating losses widened to ZWL$17 billion from ZWL$6.9 billion in 2022. The losses were reversed by net monetary gains of ZWL$64 billion after exchanges losses of ZWL$15.6 billion were incurred.
- Commenting on the performance, the group highlighted increased electricity costs, which rose by 200% during the period, as well as the pegging of employee costs to the official exchange rate.
- Gross profits increased by 158% to ZWL$216.3 billion after total revenues increased by 101% to ZWL$869.8 billion.
- The retail segment contributed ZWL$845.5 billion to revenues, which was a 100% increase from the 2022 comparative period. Volumes were down 10% due to depressed consumer demand in July and June, although the group reported modest recovery in volumes after 31 August, with September sales up 15% against the prior year. Foreign currency takings were roughly 20% of total revenues, with the group noting the controlled instore exchange rate as an impediment to the growth foreign currency sales.
- The hospitality segment saw its revenues increase by 48% in US$ terms after an 11% increase in occupancy rates and a 9% increase in average room rate. Foreign currency takings represented 96% of the segment’s revenues.
- The group’s operations generated a cash deficit of ZWL$1 billion, while investment expenditures reached ZWL$21.2 billion and financing outflows stood at ZWL$22.8 billion.
- During the period two new stores were opened in Gwanda and Robert Mugabe, Harare, with the group reporting strong performance in both.
- Total assets stood at ZWL$470 billion, with cash holdings of ZWL$115 billion, receivables of ZWL$24 billion and inventories of ZWL$136 billion. Total liabilities reached ZWL$231.4 billion, with total borrowings of ZWL$4.9 billion and payables of ZWL$175.9 billion.
- Looking ahead, the group will seek to leverage its strong liquidity position to adapt to the changing economic environment and is anticipating increased sales during the festive period.
- The group declared a dividend of 0.6 USc per share payable on 14 December 2023.
Commentary and Analysis 
The performance suggests the challenging operating environment had an adverse effect on the group’s performance. Moderate improvement in gross profit margins was dragged by escalating operating costs as the staff costs to revenue ratio increased to 15% and rental costs to revenue ratio increased to 6%. Monetary value gains from the groups off-shore assets were seemingly the key factor in keeping it profitable. Arguably, the enforced in-store exchange rates are effectively a handicap for formal retailers in their ongoing battle to win back consumers from the informal sector. The view remains that it is a potentially sensitive issue, with a socio-political dimension that might be a slight challenge for policy makers. There’s also the long-term downside risk presented by a potentially subdued 2023/24 agricultural season that could lead to rising agricultural commodity prices and depressed consumer disposable incomes. The positive is that the group’s working capital position looks stable, and it has the benefit of a foreign currency generating subsidiary. Overall, the outlook for the group’s second half-year is stable, with the relatively stable ZWL and the festive period set to drive volumes. The long-term outlook is uncertain, as downside risks could significantly dampen consumer demand. 
On the ZSE, since the start of 2023, the Meikles share has gained 878% in nominal terms and 17% in USD implied terms. The share is trading at a price to book ratio of 0.9x – Harare