eBusiness Weekly
Kudzanai Sharara
A combination of factors saw one of Zimbabwe’s retail giants, OK Zimbabwe, report its best financial performance since dollarisation with both revenue and profit reaching record levels.
Strong performance
OK Zimbabwe’s latest final results suggest the company is on solid ground after revenue of $582,9 million up 23,4 percent became the highest since dollarisation. The previous high was $483,6 million achieved in 2014.
EBITDA for the period was up 90,3 percent to $31,6 million with management saying the difference in growth rates between revenue and earnings was a result of increased efficiencies brought about by the growth in sales against some fixed cost structures.
Profit for the period of $16,6 million up 174,6 percent was also substantial exceeding the previous high of $10,3 million achieved in 2013. Earnings per share was 1,42 cents against 0,52 cents prior year while a dividend for the year of 0,71 cents was declared against 0,36 cents per share prior year comparative.
Management said overheads growth was restricted to 16,6 percent which is below the revenue growth of 23,4 percent resulting in a much higher profit growth that that of revenue. Increases were attributable to, among others, staff costs, utility charges, bank charges and rentals. The cost lines that increased significantly were those corresponding directly with sales generated. Costs of merchandise and consumables used went up by 19,6 percent to $465 million.
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 $15,5 million, up from $10,9 million in prior year as the Group continued with its refurbishment exercise to improve existing facilities as well as expand its trading footprint.
Real growth
Chief executive officer Alex Siyavora, said although there was an inflationary component in the numbers, the retail Group had experienced real growth as evidenced by the growth in volumes.
Siyavora said performance was also buoyed by the spending that followed two dramatic events of 2017.
In 2017, the country experienced two unprecedented events and both of them led to consumers embarking on a spending spree that resulted in the retail group recording significant growth on both the top and bottom line.
An element of inflationary pressures and earnings from a good agricultural season also supported the strong performance recorded by the group. This is in addition to performance from two new outlets although like sales also grew by 19,4 percent, supporting management’s view that the growth that was experienced in the period under review is real.
Although Siyavora admitted that there was an inflationary component in the growth, it was something he did not think played a significant part in the retailer’s growth achievement pointing to the official inflation figures of 2,68 percent.
He said although the group had experienced an eight percent internal inflation rate as measured at the point of procurement, not all of it was passed on to the consumer.
“The internal inflation is not necessarily the exit inflation because we measure at the point of procurement. So while we saw an average of eight percent at the point of procurement that has not always come into sales,” said Siyavora.
He said growth was actually from volume growth “through products we processed from orders and through products processed out of the stores.”
“The growth is actually confirmed in volumes,” said Siyavora noting that volumes were actually high during the September 2017 period when consumers stocked up products on fear of running out of stocks.
“It was because of the uncertainty and anxiety about supply and anxiety about prices and we all began to store our wealth in goods.”
He said improved consumer confidence following the November 2017 events had also resulted in increased volumes.
“When the change happened in November, the confidence which came with it also encouraged consumption. So two different factors in our assessment actually gave us growth,” said Siyavora.
He said although the level of unemployment had remained high the group’s assessment is that “spending improved partly as a result of increased earnings from agriculture. We had a good agriculture season and this year is promising to be reasonable but not as good as last year.”
“There was some inflation in our numbers but some real business growth was experienced when you see the growth factor.”
It would have been interesting to get the actual details of customer count and units sold to really see how the record breaking revenue levels where achieved.
Cash shortages
With the bulk of transactions now been done through electronic means, formal retailers such as OK Zimbabwe also seem to have benefited immensely, supporting the strong growth.
Siyavora said cash shortages had persisted but had led to growth in electric payments for transactions.
“In our situation, point of sale (POS) machines and mobile money accounted for around 83 percent of transaction value.
Product supply
Commenting on the source of product supply, Siyavora said direct imports had reduced because of the permit and licencing system and this has reintroduced the middle man and indications on that impact on margins. Gross profit margins came off to 17,6 percent from 17,8 percent prior year. Net income margins, however, came out strong at 2,9 percent in line with the strong growth in profitability.
South Africa remains the main source of the goods with products being procured in rand although pricing is converted to US dollars. Supply of products, both imported and locally sourced, remained stable although intermittent shortages were experienced for some products towards the end of the financial year.
Siyavora said local supplies had continued to be hamstrung by outdated technology, lack and cost of capital as well as utilities and this had had a negative impact on OKZim’s own brands.
“Our own brands have not grown and have remained low, in fact contributing below one percent simply because our local manufacturing have not geared up to the required levels so we don’t have scope,” said Siyavora.
Intense competition
Siyavora said the retail sector is very competitive with rival retailers such as Pick n Pay expanding, wholesalers such as N Richards morphing into retail outlets and also expanding, “the informal sector is also very strong with vendors on our door steps.”
“In the butchery area, abattoirs are beginning to sale direct to the public and fighting our butchery offering,” he said.
“Porous borders continue to allow grey imports to come in and those are disruptive to formal business.”
Expansion drive
OK Zimbabwe, which operates from 62 stores is still on an expansion drive and opened two more stores in the year under review and have several new stores at various stages of negotiations and development.
Management said financial services are now offered in more stores than last year while bakeries have been installed in two stores “and that is paying us off.”
“We opened two new stores ,which is OK Malven which is 700 square metres in size and OK 3rd Street which is 1 300 square metres in size.
“But as we open new stores those that are no longer contributing we rationalise them out and we have done that with OK Cameroon and Ok Wayne Street because the two locations where no-longer good,” said Siyavora.
