OK sees tougher FY17 trading environment

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OK Zimbabwe CE Willard Zireva sees a tougher trading environment in FY17, but guaranteed uninterrupted supplies of goods to shoppers.

Fidelity Mhlanga

Willard-Zireva

Zireva’s remarks came after the group’s profit plunged 91% to US$700 000 in the full year to March (FY16) from US$7,5 million recorded in FY15.

“The operating environment is going to be difficult. I think that’s the best way of mentioning it. There is no chance of employment in this market until at a time we start receiving meaningful foreign direct investment. If that doesn’t happen, I can’t see how we can increase employment,” Zireva said on the sidelines of an analysts and media briefing.

He also said the company would continue to employ cost-cutting measures and open two shops to lift sales.
Zireva said the current cooking oil shortages could only be mitigated if the company assisted in supplying raw materials for local companies.

“At the end of the day, different brands give customers choices, but forced to a situation where there is only one brand available to customers. We really are not in a position to say we must have more varieties, except when we start bringing in raw materials to a manufacturer. Like to say united refineries we are giving you funding for your raw material. We have been doing for the last six months elsewhere with many suppliers,” he added.

He said the introduction of bond notes to ease cash shortages through an Afrexim Bank-backed US$200 million, needed to be managed properly without negatively affecting public confidence in the currency and financial system.

Despite the severe cash crisis that has depleted nostro accounts, Zireva said the company managed to pay all its credit emanating from imports.

“So far, we have been paying all our creditors for all our imports. We haven’t failed to pay a single import. We have been pretty lucky,” he said.

Management said it would ride on the Kawena project to sustain product availability from South Africa and expand its financial services offering.

Kawena is a money transfer agency.

Asked if there will be basic food shortages in the near future, Zireva said these would be “intermittent”, but was quick to add that it would be corrected shortly.

Revenue generation declined to US$537,5 million from the US$462,7 million posted in the prior year.

Capital expenditure for the year was US$4,4 million from US$11,2 million prior year as the group relied primarily on internally generated cash flows to fund its assets

In a statement accompanying the financials, OK Zimbabwe chairman David Lake said persistent economic headwinds hampered business operations throughout the financial year.

“Combined effects of drought, very low foreign direct investment flows , reduce diaspora remittances, liquidity constrains, business failures and retrenchments as well as weakened consumer demand even further than previously,” he said.

During the financial year, the group closed OK Value Nkulumane in Bulawayo due to viability concerns and opened OK Zvishavane and OKmart Mutare.

A new OKmart will be opened in Gweru and Victoria Falls,while operations at Houghton Park and Chipinge will move into larger stores already under construction.

OK Zimbabwe reported an 88% plunge in operating profit at US$1,3 million for the year ended March 31 2016 from US$10,7 million in prior year owing to increased competition in the retail sector and declining disposable incomes.

Earnings Before Income Tax Depreciation and Amortisation (Ebitda) was 48,9% down, at US$9 million from US$17,7 million in the prior year.

The company said a 5,4% decline in revenue to US$437,5 million stemmed from reduced volumes and price markdowns.
Gross margin was at 16,1% compared to 17,8% in 2015 largely on product mix and significant mark-downs during promotions and obsolete stock.

Overheads went down 3,3% as staff costs dropped 10% while some service providers extended reductions in charges and tariffs.

Stock turn down was at 47 days against internal standard of 30 days.

In the prior year, it was at 41 days. Capital expenditure for the year was US$4,4 million from US$11,3 million in the prior year.

The company said in store bakeries, which now total 32 and back off bakeries at eight, will continue to be an area of key focus. Management concede the retail sector had become increasingly competitive.

Pick n Pay is on an expansion drive while Meikles is rolling out its Megastore brand. The entry of Botswana’s Choppies has also eaten into OK’s market share, especially in the low end segment. Wholesalers-cum-retailers such as N Richards and Metro Peech, as well as informal traders selling basic foodstuffs have also mushroomed over the past few years.

The financials also showed OK cut 491 jobs, nearly 12% of its total workforce, in the past financial year.

One thought on “OK sees tougher FY17 trading environment”

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