OK posts lukewarm results

RETAIL chain, OK Zimbabwe last week published its financials for the six months
to September 30, that showed the group posting a paltry US$322 351 profit after
tax.
Having completed a successful rights issue and a convertible loan debenture the
group closed the period in positive cash flow position on US$9,5 million of whic
h operations contributed US$3,2 million.
In the outlook period OK has strategically positioned itself for growth as the r
ecent recapitalisation should see the group expedite the refurbishment and facel
ift of its shops.
During the period under review, the group completed the refurbishment of two bra
nches in Masvingo and Kwekwe.
Management is hoping to extend the refurbishment to five branches before the end
of the year and additional five branches in the next financial year.
For the six months OK turned over US$116 million which was 53 percent up on comp
arable period, which analysts say raises doubts on the effectiveness of the grou
pâ s annual promotion the OK grand challenge which management pointed out was a major
marketing expense driver.
However, the groupâ s major undoing was the operating expenses that were up 92 percen
t on the comparative half-year period at US$9,5 million.
The group had an operating expense to income percentage of 8,2 percent compared
to 7,3 percent they had in the full year period to 31 March, 2010.
Meanwhile, the group exceeded the US$20 million in turnover per month mark and t
hey target to improve margins by focussing on the high mark-up categories of goo
ds.
In the outlook period operating costs are also expected to be significantly lowe
r mainly due to an expected reduction in marketing expenses in the second half s
ince unlike in first half.
OKâ s central distribution centre is now fully operational and they are set to take o
ver a couple of sites in Harare, which would offer more space as part of the dis
tribution facilities.
The group is targeting to achieve US$3 600 per square metre revenue for the curr
ent financial year while management was optimistic that the current performance
trajectory may see them close at US$3 800 per square metre.
OK aims to reintroduce own brands using both local and foreign manufacturers and
hopes to cut the supply chain by eliminating the middlemen.
Analysts forecast the group to obtain full year earnings of US$4,8 million and o
perating income to be US$18,6 million, which they reckon is a healthy 16 percent
gross profit.
Going forward macro-economic stability ushered in by multi-currency system has e
ndured, but limited liquidity in the market restricted local manufacturing of pr
oducts while low disposable incomes constrained consumer spending.
However, economic growth is expected to continue, albeit slowly because of limit
ed liquidity in the market.
Disposable incomes are not expected to change and this will continue to impact o
n demand and consumer spending, which negatively affects the retail sector.
OK also faces competition from TM Supermarkets that is now 49 percent owned by P
ick â n Pay of South Africa.
The biggest retail chains in the country OK, TM, and Spar are also facing tough
competition from small players that are coming up in the sector.
l bright.madera@zimpapers.co.zw.

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