adminrecapitalise its operations.
Chief executive Mr Oswald Masoha told Herald Business on the sidelines of the company’s Annual General Meeting in Harare last week that their strategy was to approach shareholders for funding after the company turned to profitability.
Indications are that the group is likely to go for debt rather than a rights issue offer or equity – rights issues have failed on the local market.
“We have always had the idea of going to shareholders for funding,” said Mr Masoha. “But our strategy was to be profitable and then go to shareholders. We have now turned the corner and in the medium term we would be going to shareholders for funding.”
He said recapitalisation of the group was necessary to ensure retention of finance charges and balance sheet restructuring.
“We are also going to see refurbishment of branches in line with set brand standards and improvement on transport logistics,” he said.
“During the financial period we are also going to increase our branch network to uncover areas where seven branches were closed during the hyperinflationary period.”
In the first quarter of the year, ended June 2011, Mr Masoha said the business generated US$3 million, representing a 3 percent increase compared with the fourth quarter of last year.
Sales during the period under review amounted to 35,4 percent of the total turnover of the previous year and were 131 percent above sales for the same quarter in the previous year.
An increase in sales was attributed to increased stocking countrywide.
Sales volumes on major lines in the first quarter were 106 percent above the same period last year as 3 856 units were sold compared to 1 868 in the prior year.
During the period under review, the business achieved a gross margin of 26,7 percent compared with 30,01 percent at year-end.
This has been driven in part by a higher component of locally manufactured products, making up 78 percent of total inventory.
“Margins have been kept tight to remain competitive in view of regional price parity issues and intense competition on generic lines.
“Local supply base has continued to improve and with it credit terms, although prices remain high due to high costs of production as a result of capacity limitations,” said Mr Masoha.
Imported products for the group remained limited at 22 percent of total inventory, due to liquidity constraints.
Imported products are key to increasing exclusive lines and margins in the short term.
The retail sector has benefited from credit facilities, which resurfaced in 2009 after the introduction of the multiple-currency system.
Pelhams says credit has been the major driver of sales and made up 71 percent of total sales in the first three months of the year.
Mr Masoha said against this background, the group is reviewing the tenure on credit from the current 24 months to about 36 months. At 18 months the group arrears were at 5 percent.
Going forward, growth in the appetite for credit is expected to grow the business but this would be determined by the rate at which salaries are increasing.
The company is expected to benefit from the recent increase in civil servants’ salaries and is expected to increase the tenure of credit.
Online Reporter