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OK Zimbabwe Limited Presentation To Analysts & Asset Managers 23 November 2011Half Year Results to 30th September 2011
PRESENTATION FORMATIntroductionWillard ZirevaReview of operating Environment AlbertKatsandeFinancials AlexSiyavoraOutlook WillardZirevaDiscussionAll
Preamble The company results for the period ending 30 September 2011 show good growth and performance in the context of the prevailing operating environment.
Operating EnvironmentProduct Supply Situation Between 60-65% of grocery products is imported mostly from South Africa with balance produced locally. In the other product categories the percentage of imports is higher. The foreign supply base remains a mix of direct sourcing and agencies/distributors. A significant increase has been achieved with direct sourcing at +/-60% of all imports Limitations still exist on importation of certain products & this affects supplies. Where licences are required the lead times are longer. Payment terms have improved towards 30 days with more foreign suppliers giving credit on longer terms. In addition to existing house brands, POG,OK Value & Premier Choice, we are introducing a group brand which will be sold through all our store formats. Direct sourcing mainly from Asia is being used to supply more competitively priced general merchandise particularly for OK Mart as well as some OK & Bon Marche’ stores.
OK Zimbabwe Limited’s new private label SHOPPERSCHOICE 3 SKU’s now in the stores15 SKU’s now in the stores. Target is to cover most high volume lines
Operating EnvironmentDisposable Income Challenges Low employment- A new middle class is emerging though still small High level of dependency – compounded by HIV/AIDS Civil service average salaries and general market salaries have remained low affecting consumer spend (Govt still largest employer) Wage and salary expectations remain high with employers lacking capacity to meet them. These demands are a result of pressure from -High levels of dependency -High cost of accommodation given shortages at the low end. -High cost of transport, electricity, water, rates & other services. -High cost of health services and medicines -High cost of education and related products -Diminished alternative sources of income- smaller informal market -Diminished diaspora remittances post dollarisation.
Operating Environment Risk & SecurityFrauds, shoplifting and staff thefts continue to occur contributing to shrinkageacross the retail sector. This is driven by: *The difficult economic environment *The high levels of unemployment *The culture of easy money and disrespect for ownership and others *General lawlessness and inadequate deterrent measures For OK, effective use of CCTV at all stores and tighter controls whichinclude monthly stock takes, engagement of external professional securityall combine to reduce and maintain the level of shrinkage to withinacceptable levels.The adoption of Enterprise Risk Management has ushered in a new dimensionto our risk management and risk mitigation across the company.No Robberies have been experienced in our chains though a few break inshave occurred. Further physical store fortifications have been done withexternally linked intruder alarm systems in place.
Operating EnvironmentPromotions The environment remained very competitive with all major retailers very active. Thus, to increase customer foot print, one had to have effective promotions and marketing activities. OK Stores : OK Grand Challenge Warm up this Winter Sizzling Summer ‘Bonus’ Basket Promotion Bon Marche’ : Its Winter - Promotion Its Summer- Promotion Green Power Walk (One Day event) Shape up for Summer (One Day event) OK Mart : Multi Media Launch Campaign Direct Marketing & Exhibitions Gift Centre promotion OK Mart “Sportsline” - Radio program Shop Easy : Shopping Voucher and Cash Card promotion
Operating Environment Logistics & Central DistributionThe high level of imports have made our Central Warehousing and DistributionCentre a critical component of the Supply Chain into our store network.To ensure we develop internal capacity for distribution, we have invested inadditional distribution fleet for both dry goods and perishable products whichincludes 30 Tonne vehicles for the out of Harare Stores.
Operating EnvironmentCapacity Development The opening of the new trading brand OK Mart ‘s two mega stores in Harare and Bulawayo gave us enhanced capacity in a different market A number of Branches were refurbished during the period moving them into the new generation store category with world class ratings: OK Queensdale OK Chiredzi OK Avonlea A Bon Marche’ store with the new fresh image was opened at the Westgate shopping mall in August. Post September, we completed refurbishment of Bon Marche’ Mt Pleasant and partial refurbishment of Bon Marche’ Chisipite. Work to bring Bon Marche’ Borrowdale to the new image is almost completed. Customer Response to the fresh new image stores has been tremendous across different markets.
FINANCIAL HIGHLIGHTS 6 Months To 30 September 2011Revenue of $185.609 million compared to $115.061 million last yearProfit before tax $5.151 million from $0.615 million last yearEBITDA $7.279 compared to $2.293 in prior yearAttributable Profit of $3.863 million versus $0.322 million in prior yearHeadline earnings per share of 0.38 US cents versus 0.04 US cents lastyear
Income Statement 6 Months To 30 September 2011$ millions 2011 2010 Variance %Revenue 185.609 115.061 61Net sales 185.355 114.956 61Cost of borrowing 0.002 0.102 98Income before tax 5.151 0.615 738Taxation – current (0.974) (0.093) (947)Taxation - deferred (0.314) (0.200) (57)Income after tax 3.863 0.322 1 099No of ordinary shares in issue (millions) 1 019.966 970.718Attributable earnings basis US cents 0.38 0.03Head line earnings /share US cents 0.38 0.04Net asset value per share 4.02 3.26
Financial RatiosFor six months to 30 September 2011 2011 2010Net sales ($ millions) 185.355 114.956Gross margin % 17.06 16.04Profit before tax % 2.78 0.53Overheads % 14.93 15.96Stock turn (times) historic 9.88 11.04Days stock against sales forecast 36 33
REVIEW OF PERFORMANCE Sales growth of 61% ahead of average internal inflation of 6.8% Increase in margin to 17.06% (2010 : 16.04%) due to better sourcing and improved mix Overheads up 50.84% :lower than sales growth (This is despite higher growth in Employee Benefits at 62%due to additional staff, Bon Marche Westgate & Refurbished Stores) Stock holding is balanced with forecast sales Capital expenditure $6.960 million (2010: $4.325 million)
Shrinkage Control Shrinkage% Shrinkage sales $ million 6 months to 30 September 2011 0.70 0.9576 months to 30 September 2010 1.48 1.39112 months to 31 March 2011 1.00 2.160
OUTLOOK Macro Environment The macro environment is expected to remain stable.Inflation -.will remain low with the movement of the Rand being the main factor.Liquidity - will remain tight, with low savings, exports and foreign injection. May improve with diamond earnings.Exports - no major increases apart from miningAgricultural sector – no major improvement anticipated in the coming season given limited facilities for farmers and no free inputs as well as lack of reliable power supply.Donor support - Low - limited to humanitarian aid.Employment - No growth is anticipated given the low capacity utilisation across the economy. Some retrenchments expected with company realignments. Mining resurgence maysee more people employedPrice controls - No price controls are envisaged.Interest rates -With low liquidity expected to remain above regional rates
OUTLOOK Product SupplyWill remain stable as long as there are no restrictions on importsStrategic purchases will be used for both local & direct importswith limited use of middleman :- efforts being directed more atdirect buysGrowth of own brand ranges using both local & foreignmanufacturers.Continued efforts to push trade terms to above 30daysImproved margins through better sourcing
OUTLOOK Consumer SpendUnless there is an increase in employment and salary awards forboth public & private sector employees, disposable incomeswill remain constrained.New generation stores, improved facilities and product offering willcontinue to draw more feet into our stores.Price stability is expected to maintain with minor movementsassociated with firming or weakening of the Rand.Availability of consumer credit through micro finance operations andbanks will increase consumer spend particularly in the non-foodareas, depending on the interest charged.
OUTLOOK THE FUTUREMajor refurbishments planned for the remainder of the year- Avondale,Five Avenue, Marimba. Some may be moved to next financial year owing todelays in local authority approvalsLimited refurbishments planned for Machipisa & Mbare before March 2012.Refurbishment programme to continue in next financial yearContinued focus on growing participation of high mark up product categoriesacross the three store brands- OK, Bon Marche’ & OK Mart.Strategic Procurement to ensure consistent product supply including housebrandsCompetitive pricing strategy to be maintainedTotal Quality Management & improved service delivery programs to continueOrganisational effectiveness initiatives and skills development on-going.
WILL KEEP US AHEADOF THE PECKTimely re-alignment of the business model to better withstandCompetition/grow customer support, allow growth, preserve capitaland grow shareholder Value!!!
Product Brands Quality PackagingPricePromotionDistributionKeeping pace with technologyCustomer focusStaffCorporate Social Responsibility