OK Zimbabwe profits slump

By Tinashe Makichi

Retail giant, OK Zimbabwe recorded a huge decline in profit for the year to March 31, 2016 to $700 000 from $7,5 million of the previous year as persistent economic headwinds hampered business operations throughout the financial year.

Revenue generated for the year decreased to $437,5 million from the $462,7 million posted in prior year while operating profit for the period was down at $1,3 million compared to $0,7 million in the prior year.

“The reduction in gross margin as a percentage of sales had a significant impact on the profitability achieved.

“Overheads decreased to $69,6 million from $72 million in the previous year as company-wide measures to contain costs were implemented.

“Controls over shrinkage were very effective and will continue to be enhanced,” said OK Zimbabwe finance director Alex Siyavora while making a presentation at the company’s analyst briefing yesterday.

Mr Siyavora said capital expenditure for the year was $4,4 million, down from $11,2 million in prior year as the group relied primarily on internally generated cash flows to fund its assets.

OK Zimbabwe chief operating officer Albert Katsande told analysts that the combined effects of drought, low foreign direct investment inflows, reduced diaspora remittances, liquidity constraints, business failures and retrenchments as well as non-payment of salaries weakened consumer demand during the year under review.

Prices of goods continued to decline across the various generics with the Government statistical office reporting negative inflation of 2,31 percent as at the end of March 2016. Internal food deflation was higher at 5,3 percent.

Product supply for the group during the year was consistent as South Africa remained the main source of both direct and indirect supply of goods.

This was mainly driven by the fact that local production is yet to reach levels adequate to service the market.

“The group supports the “Buy Zimbabwe” initiative and its intention to avail supply opportunities to local companies and small to medium enterprises that meet the basic requirements of quality merchandise and competitive prices.

“The group assisted some local manufacturers to increase their capacity utilisation by funding raw material imports.

“In line with national trends, most suppliers reduced prices of goods in an effort to stimulate demand and the company passed the benefit on to its customers,” said Mr Katsande.

To extend its reach and increase market share, the retail Group opened two stores during the financial year, OK Zvishavane and OKmart Mutare.

Mr Katsande said the contribution from these stores is encouraging and the group is in the process of rationalising operations. OK Value Nkulumane in Bulawayo was closed as it had remained unviable.

OK Zimbabwe chief executive Willard Zireva said the Group posted a decline in both revenue and profitability due to the prevailing difficult economic conditions.

He said gross margins during the period softened in a market whose consumption is increasingly weighted towards low margin basic products and which is experiencing ever-increasing competition.

Operating costs declined but the decrease was not adequate to counter the negative effect of lower sales and gross margins

Mr Zireva said the company will invest about $5 million towards refurbishments and new store developments.

The other investment will go towards setting up of more instore bakeries which stand at 32 while back off bakeries amount to eight.

“Despite the difficult economic environment, the group will take the necessary steps to improve margins without losing market share. Focus will be on further cost reductions to improve profitability. To continue enhancing brand strength and improve sales growth, the Group will embark on full scope refurbishment of OK First Street.

“Partial refurbishments will also be carried out at OK Gwanda and OK Kwekwe. New OKmart stores will be opened in Gweru and Victoria Falls, while operations at Houghton Park in Harare and Chipinge will move into larger stores already under construction,” said Mr Zireva.

“A new OK Value store will also be opened in Waterfalls. Notwithstanding the challenging operating environment, the Board and management remain confident that the continued loyalty and support of our employees, shareholders, suppliers and customers will be rewarded,” he said.