OK takes over the running of its in-store bakeries

OK takes over the running of its in-store bakeries
Published: 06 June 2014
OK Zimbabwe is looking at operating their own bakeries as they vie for better margins after recording 0.8% revenue growth and 0.2% gross margins decline for the year ended 31 March 2014, group CEO Willard Zireva told analysts yesterday.
"On the initiatives which bring us back to efficiency and more profitability by the way, our bakeries are now run and owned by ourselves beginning this financial year. In the past they were owned and run by Innscor through their in-store bakeries.
"The difference between that and what happens when you are running yourself is quite significant. When we got in the transaction for Innscor to run the bakeries many years ago we thought it was the right thing to do but after many years we actually think it was the wrong thing," he said.
An agreement with Innscor was terminated and 25 bakeries are in operation after acquiring the equipment that Innscor has in their own stores.

"For us, it's an area where we see great opportunities and it's translating to impacting on our margins as we go forward," he said.
Giving the outlook on the operational side, the CE indicated that their focus will be on market share growth and efficient use of existing capacity as they target greater share of customer spend and expand services by leveraging on good IT skills.
"Subdued business activity is expected to continue into a significant part of the next financial year. The market will remain very competitive and there is a new entrant in the form of Choppies - a Botswana listed company which at the moment is only in Bulawayo.
"We have to watch how they move forward. We know they've got ambitions to come into Harare and we've been told they negotiated with some small local retailers. Spar, in terms of their performance, they are not a serious threat… Obviously TM, Pick 'n' Pay are our biggest competitors," he said.
The group will also continue pushing growth in fruit and vegetables as well as butcheries while emphasis will be put on cost reduction and margin protection.
Presenting the financial highlights, group FD Alex Siyavora noted the 0.9% increase in revenue to $483.7 million and 21.2% decrease in PAT to $9.7 million.
"You see that growth number is 0.9%; average official inflation for the 12 months is 0.87%, our internal inflation year-on-year in negative 5.5%... prices were coming down and we started seeing that as early as  April and intensified from July .
"We defended our market share when you look at the volumes by leveraging our portfolio of store brands, the promotions continued and also improved facilities and offering," he said.
Net sales for the group were 0.8% up on prior year at $482.8 million.
The group's EBITDA was 11.8% down to $19.8 million while earning per share decreased by 28.6% to 0.85c.
Capital expenditure was up 1% to $12.4 million and for the current financial year they are budgeting for about $16 million. Meanwhile, total assets marginally increased by 0.6% to $117 million.
Giving the key ratios, Siyavora said gross margins declined to 17% from 17.2% while overheads as a percentage of sales increased to 14.3% from 13.6%. Underlying operating profit margin closed at 2.8% from 3.7% and net income margin was down to 2% from 2.6%.
With gross margins at 17%, the FD told analysts that higher consumption of low margin basic items continues and as the basket is coming down, going forward the improvement is going to come from better mix.
Overheads were 6.3% up higher than sales growth and Siyavora highlighted that the group should continue advertising and carrying out promotional activities to compete for retail dollar.
"More staff is engaged to provide adequate service in improved facilities and broadened product offering and benefits will be reaped in due course," he added.
High cost of utilities, cost of security and depreciation of newer equipment all contributed to increase in overheads.
EBTDA margin went down to 4.1% from 4.7% while ROCE declined to 17.3% from the prior 25.3% and net sales per square metre were down to $5 865 from $6 067 and as indicated by Siyavora it was essentially because the new shops they opened, while they contributed space they had less time to contribute to the sales and also the sales generation is not as high as the average locations.
Giving the operating environment, Zireva stated that high and increased unemployment as well as tighter liquidity caused limited demand.
On the supply side he noted that a significant amount of goods are being imported mainly from South Africa as "local industry supply continues to be hamstrung by lack and cost of capital, as well as state and cost of utilities."
"Import quotas, although they are imposed for certain products, permits were not difficult to secure," he added.
Own brands developed by the group constitute 27 lines and contributed only 1% as volume is constrained by local industry manufacturing limitations.
He told the analysts that there has been a noticeable move by suppliers to reduce their prices in order to increase demand and as a consequence of that retail just follows that process as well.
In addition to capacity enhancement, he stated that they have initiatives which are growing on the financial services, Kawena project and iTech.
On Kawena, he said; "A new employee came in to drive that project going forward. We had tried to do it using existing resources, it did not work out and we had to employ a person dedicated to that and they're making progress. As we speak they're in Bulawayo meeting with our partners from South Africa so that they look at what's happening and what needs to be done. So there is still potential to grow the project going into the future. "
The group total number of stores increased to 59 outlets from prior year's 54 whilst the number of staff also went up to 4 142 to 4 028.

Zireva said there is a new entrant called iTech and he was quick to note that the new outlet is "not in any way going to take the group's attention away from the core business," which is the supermarket retail-wholesale business.
"It is an opportunity area which we've identified and it has more to offer than just the shop which is situated at our old Eastlea branch; so that's a gap which we identified existed in the market, but the skim of things is that it's going to fill a gap, it's not going to detract from our normal operations," he added.

- zfn
Tags: OK,


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