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Red Star in the red

RED Star Holdings Ltd will have to seek fresh capital for survival after its operations were weighed down by lack of capital and borrowings.

The group’s chairman, Patison Sithole, said the global financial crisis and economic recession last year forced the company to wind down its Zambian operation, Red Star Distributors Zambia Ltd.

Sithole said despite the political and fiscal policy changes in 2009 that brought stability to the business sector, the economy has not “turned around as fast as expected due to liquidity constraints”.

“As a result, available funding was short- term and at high interest rates which proved punitive for the business,” said Sithole. “The retail sector is still relying on imports to complement the local manufacturing industry. Margins in the retail sector have gone down significantly due to stiff competition and low barriers of entry. The aggregate demand remained subdued due to low disposable incomes.”

Red Star, the Star Africa Corporation Ltd wholesale and retail strategic business unit, generated US$54 million revenue during the 12 months but this was gobbled by costs which accounted for US$48 million.
Even the modest operating profit of US$5, 29 million was drowned in high operating costs at US$8 million.
The group reported a US$5,1 million loss which added to the retail chain’s woes as it already had a US$5, 4 million in liabilities.

“The going concern of the group is dependent on the continual support from the holding company, the success of its capital raising process and renewal of the group’s borrowing powers at the next annual general meeting (AGM) in August 2010,” said the group’s auditors in a statement accompanying the results for the year ending March 31. “The directors have assessed the ability of the group to continue operating as a going concern and believe that the preparation of this financial statement on a going concern basis is still appropriate.”

In Zimbabwe, the group’s operations were “severely affected by inadequate working capital”.
“The group managed to secure a US$3 million offshore facility in July 2009,” said the board in a statement accompanying the financial results. “This, however, fell short of business requirements and as a result, 10 branches were closed in February 2010. The business operated at 35% of capacity during the period under review and remained 100% debt financed.”


Leonard Makombe

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