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Harare - OK Zimbabwe, the biggest retail rival to Pick n Pay in Zimbabwe, saw after-tax profits drop 91.1% from $7.5m to $0.7m for the year to end-March 2016, despite having adequate stock in its stores across Zimbabwe.
The retail chain, which also runs remittance facilities in partnership with South African companies, said: “Combined effects of drought, very low FDI, reduced diaspora remittances, business failures, as well as delayed or non-payment of salaries weakened consumer demand.”
This had led to lower prices which translated into lower profit margins. The company said both foreign and local suppliers had reduced prices to stimulate demand.
“Prices of goods continued to decline across the various generics with our internal food deflation coming out at 5.3%, which is higher than the country’s official negative inflation of 2.31%,” said OK Zimbabwe.
“Product supply for the group was generally consistent throughout the year. South Africa remained the main source of both direct and indirect supply of goods as local production is yet to increase to levels that are adequate to service the market," David Lake, chairperson of OK Zimbabwe, said.
Zimbabwe has looked to push through a buy local campaign to prop up struggling local industries, but this has not yielded results. Some products are still in short supply despite the imposition of import restrictions. This has forced retailers to rely mostly on South African products.
Revenues in OK Zimbabwe declined to $437.5m for the year from the previous contrasting period income of $462.7m - a 5.4% drop. The pre-tax profit position declined to $1.2m from $10.6m.
“The reduction in gross margin as a percentage of sales had a significant impact on the profitability achieved. Focus will be on further cost reductions to improve profitability,” Lake said.
Overhead costs for the period reduced to $69.6m while the cost of borrowing “remained low” at $0.33m, although the decline in operating costs was not adequate to counter the negative effect of lower sales and margins.
However, capital expenditure for the period was down at $4.4m from $11.2m, despite the company saying it will now embark on a store upgrade and facelift exercise to improve competitiveness against its rivals.
Most Zimbabwean companies are struggling to raise profit levels as the economy continues to recline. A fast-growing informal sector has also resulted in declining business volumes for the formal companies.
