eBusiness Weekly
Tawanda Musarurwa
Powerspeed Electrical’s move to boost investments in real assets is a strategic move to preserve its balance sheet in view of the inflationary pressures that have affected the local operating environment, analysts say.During the year to September 30, 2018 the firm spent over $5 million on acquiring landed property.
“We believe, the group has taken great strides to preserve their balance sheet by investing in real assets, while minimising United States dollar liabilities. During the period, Powerspeed Electrical expended $5,14 million on capex, largely towards the purchase of the buildings which house the Pomona and Chiredzi Electrosales branches,” said analysts at Akribos Research Services.
“This resulted in an increase in non-current assets to $11,13 million (+54 percent year-on-year). Current assets were 24,19 percent higher at $24,89 million on account of an increase in inventories (+34 percent), a deliberate strategy at a time when the value of monetary assets remains uncertain, it should, however, be noted that part of the increase can be attributable to inflationary cost adjustments.”
The Zimbabwe Stock Exchange-listed Powerspeed Electrical profit for the year up to September shot up by 285 percent to $4,2 million from $1,1 million recorded in the same period last year.
Powerspeed’s outstanding performance is resultant of growth in sales volumes as the company launched an aggressive drive in opening new shops leading to a total retail space of 12 000 square metres country wide.
The company’s revenue grew to $82,5 million from $53,9 million, a 53 percent upsurge in revenue as profit before tax jumped 288 percent to $5,7 million compared to $1,5 million during the same period last year.
Powerspeed credited the phenomenal growth in business to the introduction of flagship branches at Harare drive in Pomona and Village Walk, Borrowdale despite having an established branch nearby, which all led to surge in volumes uptake.
“The key strategy for the year was growth in sales volumes, with a resultant improvement in our purchasing power.
“During the year we continued our expansion programme opening 1 800 square meter flagship branch on Harare drive in Pomona. The branch’s performance exceeded expectations.
“We also opened a 300 square metre convenience store at Village Walk, Borrowdale despite being stone’s throw away from the existing Sam Levy’s branch and the store performed well,” said management.
However, the hardware retail chain bemoaned various trade barriers which led to an inadequate supply of products that also encompassed limitations on foreign payments.
“Erratic supply of both local and imported products continued to be the greatest challenge we faced during the past 12 months. Imports were hampered by various trade barriers, notably Bureau Veritas, import licences, punitive duties and restrictions on foreign payments,” said Powerspeed.
The company’s Electrosales brand added 2 110sqm of space during the period (1 800 square metres Pomona branch & 300sqm Village Walk, Borrowadale) bringing the group’s total retail space to 12 000sqm.
But does the facile growth of retail space really translate to “real growth”?
The answer is a simple yes. And it’s simultaneously a simple no.
Expansive retail space is beneficial for retailers to the extent of a potential increase in customer footprint and hence potential of increased revenue.
But on the other hand, it’s a sign of a lack of innovation on the part of the retailer, especially in this contemporary environment where digital retail platforms are increasing taking over (take a hint: Jeff Bezos’s Amazon.com is now worth over $100 billion!)
Irrational expansion of retail space is no longer justifiable. Analysts say retailers need to better understand the physical requirements to support a world where online is a significant and growing sales channel.
And to this extent, they can better optimise space with demand (because increase in retail space is not a free hit, it has an impact on margins).
But maybe, just maybe increasing retail space may have justification, especially in an economic milieu such as Zimbabwe where digital retail platforms are still embryonic. Powerspeed’s numbers may just give us an insight.
“The new branches have been well received, making significant contributions to the topline,” said the analysts at Akribos.
Year-on-year topline growth of 53 percent was registered by the group, as revenue grew to $82,5 million from $53,9 million during FY2017, on the back of inflationary pressures as well as strong volumes growth.
