OK profits from panic and plastic

OK profits from panic and plastic
Published: 30 November 2017
PANIC buying, triggered by fears of basic commodity shortages and price hikes spurred OK Zimbabwe's revenue during the half year ended September 30, 2017, an analysis by Old Mutual Securities (OMSEC) has said..

Revenue was also bolstered by a switch to electronic forms of payments that OK Zimbabwe and other formal retailers have heavily invested in since currency shortages rattled the markets last year, OMSEC said.

Investments in electronic payment systems have attracted most customers into OK and other retailers because informal retailers were still demanding hard cash for goods.

Access to cash from banks remains a challenge in the country.

Zimbabwe's largest retail chain two weeks ago reported that revenue rose 22,6 percent to $268 million during the review period, after notching $218 ,6 million during the prior comparable last year.

Net income more than doubled to $5,1 million, from $2,3 million the previous comparable period largely owing to panic buying, which was triggered by social media gossip that warned of looming food shortages.

Not only did the panic buying put volumes, it also triggered a spike in inflation, which bolstered sales receipts.

At the beginning of this month, a central bank executive said electronic transactions had so far this year reached about $66 billion, as consumers resorted to plastic money due to the bank note shortages.

The amount of foreign currency notes and coins in the banking system slumped by 80 percent to $38 million at the end of July, from $193,28 million in January 2016, according to data from the central bank.

"The growth in revenue is suspected to have been achieved on the back of increased use of plastic money allowing OK stores to capture customers ahead of informal traders who do not have the infrastructure to facilitate trade using plastic money," OMSEC said.

"Secondly the increased currency fears prompted episodes of panic buying during the period under review which buoyed sales and thirdly, higher in-store inflation saw retail prices surging thereby supporting revenue growth.

"The retail sector remains highly competitive with sustained investment from competitor outfits namely Pick n' Pay, SPAR and Meikles Mega Stores. In order to keep customers footprint in their stores, OK has put emphasis on promoting and increasing the functionality of the stores' financial services, while a number of promotions continue to be carried out among the different store brands.

"Given tight liquidity and competitive pressure in the retail sector, margins will remain tight, while, defending the top-line will prove difficult," the report added.

Gross margins improved to 16,9 percent during the review period, from 16,5 percent during the prior comparable period last year on improved production mix tilted towards high margin products, according to OK.

Operating profit rose to $7 million from $3,2 million in the comparable period last year while earnings before interest, tax, depreciation and amortisation increased by 63,1 percent to $11,3 million from $7 million.

Capital expenditure amounted to $49 million in the period mainly due to the opening of a new store in Harare, taking the store count to 63. The company says it is expecting to open another store, also in Harare, before year end.
- fingaz
Tags: OK,


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