While the first half was relatively stable, the operating environment became more challenging in the second half of the financial year. The fiscal and monetary policy pronouncements in October 2018 affected confidence in the market among holders of ZWL balances and bond notes and triggered panic buying of goods to retain value as well as provide against expected shortages. Shortages of foreign currency constrained replenishment and led to high prices of products. Official year on year inflation increased from 2.68% in March 2018 and 5.39% in September 2018 to 66.8% by March 2019.
Despite the increasingly harsh operating environment, the Group recorded an improved performance in both sales growth and profitability compared to prior year. The growth in sales and increase in profitability are attributable mainly due to successful and robust promotions, refurbished branches, continued customer focus, and the lag of cost increases behind revenue growth in inflationary conditions.
During the year, the Group opened a new OK branch in Glen View and an OKmart store in Masvingo, to date their contribution to the Group is pleasing. The refurbishment programme continued during the year, with OK Marondera, Bon Marche’ Chisipite, Bon Marche’ Borrowdale and OKmart Harare being refurbished. The emphasis was to increase capacity and facilities and improve customer experience.
CHANGE IN FUNCTIONAL CURRENCY
In October 2018, the Central Bank directed banks to separate Nostro FCA accounts and ZWL FCA accounts. The USD and ZWL balances and bond notes remained at par.
On the 20th of February 2019, in its Monetary Policy statement, the Central Bank introduced the ZWL, made up of ZWL electronic balances and bond notes, as a currency through SI 32 of 2019 (SI32/2019). Statutory Instrument 33 of 2019 (SI33/2019) gave guidance on the accounting for assets and liabilities that were, immediately before the effective date, valued and expressed in United States dollars. Public Accountants and Auditors’ Board (PAAB) gave guidance that the SI 33/2019 was in divergence with IAS 21, The Effects of Changes in Foreign Exchange Rates.
However, after considering the impact of compliance with IAS 21 and SI 33/2019 it was determined that the financial results of complying with both were not materially different when presented in ZWL as the Group predominantly traded in ZWL with limited foreign currency exposure.
Revenue for the year increased by 37.6% to ZWL 801.9 million, from ZWL 582.9 million in the prior year. Profit before tax of ZWL 67.5 million was 186.1% up on prior year’s ZWL 23.6 million, while profit after tax increased by 156.9% to ZWL 49.2 million from ZWL 16.6 million in prior year.
Overheads growth was restricted to 31.4% which is below the revenue growth of 37.6%. Increases were attributable to, among others, staff costs, maintenance costs and spares, bank charges and rentals. The cost lines that increased significantly were those linked directly with revenue generated.
The Group operated free of debt as internally generated funds were adequate for working capital and capital expenditure requirements. Capital expenditure for the year was ZWL 25.8 million, up from ZWL 15.5 million in prior year as the Group continued with its refurbishment exercise to improve existing facilities as well as expand its footprint.
The Directors have declared a final dividend of 1.71 ZWL cents per share to be paid to the shareholders on or about the 18th of June 2019. The final dividend brings the total dividend declared for the year to 2.06 ZWL cents per share.
Product supply remains a challenge and strategic linkages with suppliers will be key to ensure the stores are reasonably stocked. Despite the economic challenges in the country the Group will continue to focus on growing market share profitably through continuously enhancing the customer value proposition.
Refurbishment work will be carried out on a number of stores and new stores will be opened as strategic sites are identified where the Group is presently inadequately represented.