By ETimes
Financial Performance Highlights
- After a protracted delay due to issues related to a new Enterprise Resource Planning system, OKZim finally released its FY2023 financial results.
- The group reported an inflation adjusted 36% decline in profits after tax to ZWL$5.2 billion while Gross profits increased by 50% to ZWL$56.4 billion and the operating profits declined by 6% to ZWL$19.8 billion.
- The decline in profits was attributed to increases in operating costs from increased usage of generator fuel, inflation pressures embedded in forward pricing by market players, labour, cleaning and security costs
- The groups revenue climbed 33% to ZWL$311.3 billion, while volumes declined by 7.7% during the period. The weak performance was attributed to liquidity shortages, depressed consumer spending power and the increased competitiveness of informal retailers due to exchange rate driven pricing distortions.
- The net cash generated by the group’s operations increased by 57% to ZWL$11.1 billion. This supported net investment expenditures of ZWL$10.1 billion as the group completed a ZWL$3.7 billion acquisition of Food Lovers Market and a series of store refurbishments during the year.
- The groups total assets increased by 48% to ZWL$133.4 billion, with ZWL$3.1 billion in cash, ZWL$34.4 billion in inventories and ZWL$9.6 billion in receivables.
- Total liabilities increased by 82% to ZWL$74 million, with payables of ZWL$42.2 billion and total borrowings of ZWL8.7 billion
- Looking ahead, the group highlighted the challenging operating environment, noting the adverse impact of the liquidity shortage and rising overheads. The group management will focus on implementing cost containment strategies and remaining vigilant for economic shocks.
- The board declared a final dividend of USc0.02.
Commentary and Analysis
Its a set of financial statements that aligns with the prevailing economic environment. Declining sales combined with rising overheads and borrowing costs contributed to the reduced profits and profitability. Analysis suggests that the group’s sales in real terms have declined sharply for the last two financial years. The period coincides with noticeable growth in informal retail as exchange related pricing distortions have given a competitive edge to informal operators. Its arguably a complex issue with an awkward socio-political dimension. As such, outside of a normalization of exchange rate dynamics, formal retailers will likely have to find internal solutions to overcome the competitiveness challenges and revenue loss.
The acquisition of Food Lover’s Market represents a bit of diversification, with the segment’s strategic focus on high-end food products that fall outside the scope of informal retail. Although, concern lies in the significant share of the manufactured/processed food products sold by Food Lovers the are imported – given there is a growing market of independent niche retailers offering specialized food products to high-income markets. In that sense, it would be interesting to see the group invest in emerging businesses in the manufactured foods/beverages sector, and support the development of high-quality locally made niche products to substitute for imports in the Food Lover’s outlets. Otherwise, the long-term play looks like a national expansion of the Food Lovers brand as the economic environment stabilizes and consumer capacity recovers. In the meantime, operating environment remains largely the same so far in FY24, so expectations are for similar outcomes. The current results suggest that OKZim’s revenues are largely dollarized, so it’s unlikely that the group incurred excessive losses during the exchange rate shock experienced in Q2 2023. The fully integrated Food Lover’s operation will be expected to provide a moderate boost to the group’s top and bottom lines. 
On the ZSE, since the start of 2023 the OKZim share has gained 327% in nominal terms and lost 48% in real terms. The share is currently trading at P-B ratio of 0.5x and a P-E ratio of 5.7x.