Retail, manufacturing sectors fail to take off

THE limited liquidity prevailing on the market since the adoption of multiple currencies last year affected retailers and manufacturers who have failed to take off from the deep recession which has resulted in listed companies posting unexciting results during the current reporting period.

Results released in the latest reporting period showed that companies have largely failed to emerge from the deep recession, which saw capacity utilisation dropping to 10%, with other companies closing shop.
Apart from the limited liquidity, the cost of doing business in the country has continued to rise, a development that has dented prospects for recovery.
Analysts have attributed the costs spike to the intermittent power cuts, high borrowing costs and expensive cost of utilities.
Mike Mashiri, an economic analyst, said the issue of power cuts had weighed heavily on companies in the manufacturing sector as most of them use heavy machinery which would take time to reboot once they have been cut off.
“They cannot use generators to power such machinery,” said Mashiri. “It takes time to restart the machinery and this translates to hours lost.”
Mashiri said low capacity utilisation made local manufacturers uncompetitive as they have to meet fixed costs which do not change no matter how much a company could be producing.
“Generally, companies are at 30% capacity and it is a challenge as they have to meet the fixed costs,” said Mashiri. “These costs will be factored in the price of the commodities which would make the local products uncompetitive.”
Mashiri said the technological lag, where the country lost close to a decade ago in terms of renewing machinery, was also denting profit levels as the equipment used was “obsolete” and has seen manufacturers being less efficient compared to regional competitors who have been constantly renewing equipment.
While results released recently have confirmed the obvious problems faced by both the manufacturing and retailing sectors, there were certain issues which have become particular to the latter.
In a statement attached to its results last week, OK Zimbabwe, the second largest retailer in the country, summed up the situation in the sector when the company bemoaned the effects of shrinkage –– loss of products to theft.
The retailer has engaged a private security firm to assist fight shrinkage — a retailer’s word for theft –– and this had a bearing on the company’s cost structure as it added to overhead expenses together with expenditure such as replacement of aging refrigeration plants, closed circuit television and generators.
Overhead expenses during the financial year to September increased 63% to US$18 million, said OK.
OK Zimbabwe’s revenue during the 12 months to September was US$116 million while  pretax profit stood at US$614 941.
This, analysts say, shows that the margins in the retail sector were very narrow during the year under review as it literally meant that they retained less than one cent for every dollar they produced.
Profit margins were, however, slightly higher in agro-processing and agriculture companies such as Ariston and Hippo Valley which is around 10 cents retention for revenue realised.
Aico Africa Limited, a diversified entity which has interests in cotton processing and growing, fast moving consumer goods and spinning, was hit by the harsh operating environment and posted US$11.7 million pretax loss.
“Group performance has been disappointing with losses forecast in Cottco, Olivine and Scottco,” Aico group secretary Pious Manamike said. “An injection of capital is critical to the future success of the group.”
Both OK Zimbabwe and Aico concurred that the low liquidity had impacted on sales as consumer demands remained subdued.

 

Leonard Makombe

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