20091211

Harare — OK Zimbabwe Limited, the country's second largest fast moving consumer goods (FMCG) supermarket group, predicts economic recovery to be slow and lengthy owing to challenges related to liquidity, low aggregate domestic demand and excessive import dependence arising from local supply constraints.

Based on empirical industrial realities, this forecast obtrusively confutes the robust outlook projected by the 2010 national budget, which revised upwards the initial growth rate of 3,5 percent for 2009 to 4,7 percent and forecast a near two-digit growth rate next year.

This variance implicitly shows the forecasting by the fiscal authorities, who have traditionally missed their own targets, may be fraught with inaccuracies and a high margin of error.

OK says the next six months to February 2010 would show progressive growth in sales and merchandise stocking, with imports maintaining a dominance over local products until the domestic flow makes a phenomenal rise and closes the supply gap.

Though recovering, the local manufacturing sector remains fragile and under pressure from input shortages, high overheads, capital refinancing constraints and import competition, which is also feeding on itself in the retail and other consumer-sensitive sectors.

By restricting credit terms to a maximum of 14 days compared to South African third-party suppliers who have advanced facilities of up to 30 days, local merchandisers have further pushed themselves out of the game.

In the half year to September 30, the retailer -- which operates Bon Marché, OK, OK Express and Pax Cash & Carry -- relied on short-term third-party facilities to restock after opening the financial period on a low working capital base that aggravated in the second quarter of the year after the economy multi-currencied in February.

To jump over the hurdle and cordon off competition from larger retailers from South Africa, who have shown a strong interest in squeezing into the local FMCG retail space, OK had hoped to strike a strategic alliance deal with South Africa's retail giant, Shoprite Holdings, to drive its strategic plan, dubbed Vision 2020.

The strategy targets recapturing the market share the supermarket chain had lost to an agglomeration of small players that sprouted during the period of shortages and hyperinflation and annexed over 50 percent of the local FMCG market from under the nose of larger retail chains.

But the partnership talks collapsed in October when Shoprite withdrew from the table citing excessive political risk and economic uncertainty, soon after a due diligence.

"We hope that the signing of the Bilateral Investment Promotion and Protection Agreement with South Africa will unlock direct credit facilities for us since we are likely to be reliant on imports for some time," OK chief executive officer, Willard Zireva, says. "At the moment we are relying entirely on third parties who buy and then supply us."

During the review period, the retailer reported a net profit of US$1,8 million or US$0,25 headline earnings per share with no comparative. Revenue from core operations reached US$76 million with US$2,8 million of this translating into profits.

Compared to the last full-year financial period ending March 31, the ratio of costs to income as measured by the increasing ratio of operating profit to revenue, dropped during the review period, driving operating profit higher.

The ratio is likely to decline further in the second half as borrowings to fund operations gradually come down inversely with the increase in the ratio of cash retained from operations to finance trading.

The bulk of the group's current assets are dominated by inventories worth US$18 million carried over from the first half, which show a health stocking level.

Spending on capital equipment, which was restricted in the first six months, would be released slightly as the company refurbishes its branch in Masvingo gutted by fired some two years ago.

allafrica