OK plans $16m capex, quits Innscor deal

HARARE - Listed supermarkets chain OK Zimbabwe (OK) plans to spend $16 million in capital expenditure this year, targeted mainly at refurbishments and establishment of bakeries.

It intends to renovate six of its retail outlets and open up
in-house bakeries, a move resulting in the termination of its deal with Innscor.

Innscor was running bakeries housed in OK’s supermarkets.
Willard Zireva, OK’s chief executive, said they had initially budgeted for 12 bakeries, but were targeting 25 units by October this year.

“When we went into the transaction with Innscor to run the bakeries many years ago, we thought it was the right thing to do. But after many years we thought it was the wrong thing to do and having realised that, we agreed to terminate the agreement,” he told an analysts briefing.

He said they expected to make positive margins from utilising their bakeries’ capacity and had already acquired baking equipment at a much lower cost to capacitate the operations.

“We will continue focusing on market share growth and efficient use of existing capacity. We have been growing our capacity through refurbishments and bringing in new branches,” said Zireva.

Meanwhile, in the year to March 2014, OK’s after tax profit slumped 21,2 percent to $9,7 million from $12,4 million realised in prior comparable period due to subdued demand coupled with shrinking disposable incomes and mounting biting deflationary pressures.

“The impact (of deflation) is significant as we go forward because effectively we operated for nine months of the year when our numbers in terms of inflation were negative,” said Zireva.

The country’s annual inflation for April rose by 0,65 percentage points but remained in the negative at minus 0,26 percent from  minus 0,91 percent in March.

He added that deflation had effects on revenue as prices were decreasing.

“You can exactly be selling the same volumes but if prices are going down you cannot achieve the same revenue numbers,” said Zireva, adding that suppliers were reducing prices to stimulate falling demand.

“As a consequence of that, we (retailers) follow the same (order),” he said. During the period under review, revenue was subdued, slightly increasing by 0,8 percent to $483,7 million from $479,6 million.

Earnings before interest, taxes, depreciation and amortisation was down 12 percent to $19,8 million.

The cost of borrowing decreased to $231 548 from
$766 370 in prior year mainly as a result of the conversion to equity of the Investec Africa Frontier Private Equity Fund loan.

Capital expenditure increased to $12,4 million mainly in respect of opening new shops, store refurbishments and replacement of old plant and equipment. — Business Live

Comments (8)

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water - 9 June 2014

we want increment period

mufandichimuka - 9 June 2014

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looking at the capital expenditure you will notice that these guys are making money and spending it wisely,politicians must take a leaf from these not their over eating,however.........

gondobwe - 10 June 2014

pa increment taura zvako OK workers itsuro chaidzo

gondobwe - 10 June 2014

Kushandira nyika kwa OK kunofiwa panodiwa increment shuwa

protestor - 10 June 2014

It is clear that these retailers have been overcharging us for ages if they can still make a profit of nearly $10m when prices have been reduced. Not so sure they are doing the right thing going into the bakery business. They cannot be 'all things to all men' & expect to do well. Good luck to them

saundy - 11 June 2014

Kukama imbwa chaiko

mafirakureva - 26 June 2014

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