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Tinashe Makichi Business Reporter
Listed retail group, OK Zimbabwe recorded a 71,6 percent decline in profit for the half year to September 30, 2015 to $1, 2 million from $4, 3 million in the previous year comparative. CEO Willard Zireva told an analysts briefing last week that there has been an increase of new entrants (Meikles Mega Store, Choppies and Food Lovers). The expansion of the Pick n’ Pay brand had also added to the competition.
Wholesalers cum retailers were also expanding their footprint while the informal sector has remained resilient with an increase in door-to-door vendors, vehicles selling wares in the streets, open markets and residential or house sales. Specialist traders had also proliferated while grey imports continue to be an issue.
As a result, major players have had to embark on heavy promotional activities in order to drive volumes. Revenue generated for the period went down eight percent to $213,6 million from $232,1 million posted in the prior year driven by price markdown from foreign and local suppliers in their effort to stimulate demand.
Profit before tax was 77,49 percent down at $1,3 million from $5,8 million in the previous year. Overheads for the period went down 5,5 percent to about $34 million from about $36 million in the previous year, which was primarily a result of cost cutting initiatives implemented by the company.
“This decrease was despite increased dependence on generators necessitated by worsening shortages in electricity supplies. Controls over shrinkage were effective and will continue to be enhanced,” said Mr Zireva.
The cost of borrowing during the period remained low at $0,14 million while capital expenditure for the period was $3,9 million down from $5,5 million in the prior year. The capex went towards setting up of new stores and replacement of old plant and equipment. Operating costs during the period went down, but the decrease was not adequate to counter the negative effects of lower sales and gross margins.
Consequently, capital expenditure had to be slowed down as earnings were insufficient to sustain refurbishment and expansion at levels achieved previously. Nevertheless, a new OK store was opened in Zvishavane and a new OK Mart was opened in Mutare. The contribution to sales and profitability from both branches is pleasing.
Mr Zireva said challenges presented by the declining economic environment have continued unabated and indeed worsened coupled with the effect of a depressed world economy.
He said businesses continue to fail while unemployment continues to rise. “Every business and company in Zimbabwe has been adversely affected. In our sector, the direct effect is that no matter how well stocked our stores or how competitive our service and pricing, people simply have less to spend on a day to day basis,” said Mr Zireva.
“Product supply to all our stores was adequate but prices continued to decline in line with price reductions from foreign and local suppliers in their effort to stimulate demand.” Mr Zireva said further reductions were seen as a consequence of several price based promotions brought by retailers in their bid to increase market share. The difficulties of the economic environment which the company continues to grapple are expected to persist and will look at improving sales generation and profitability.
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