CHAIRMAN’S STATEMENT

OVERVIEW

The operating environment continued to be hampered by weak and declining macro-economic performance which was characterised by low manufacturing productivity, increasing unemployment, depressed consumer spending and limited access to cash. Prices of goods across the various product groups continued to decrease albeit at a reducing rate with the government statistical office reporting negative inflation of 1.33% at the end of September 2016 compared to 3.11% in 2015. The Group’s internal food negative inflation rate for September 2016 was 1.34% compared to 4.5% in the same month last year.

The country, which is predominantly dependent on importation of goods mainly from South Africa, experienced some delays in making international settlements for most of 2016. This situation, coupled with the import restrictions introduced through Statutory Instrument 64 of 2016, started to impact the supply of products. Despite these challenges, the Group has managed to secure reasonable supply of goods for the period under review.

In this period, the Group recorded an increase both in revenue and profitability. Gross margins improved due to efficient procurement, while operating costs were managed down to achieve improved profitability. Working capital has improved significantly reflecting sufficient liquidity in the business to meet the Group’s operating requirements.

Two new stores were opened during the period under review, namely OKmart Gweru on 17 July 2016 and OKmart Victoria Falls on 1 September 2016. The new outlets have demonstrated good potential to generate sales and we are confident they will contribute meaningfully to the performance of the Group. The i-Tech store in Eastlea did not perform to expectation as a standalone operation and so was closed down on 31 July 2016 and stock moved into the OKmart chain and selected OK Conventional stores.

GROUP PERFORMANCE

Revenue generated for the period increased by 2.3% to $218.6 million from the $213.6 million posted in the comparable period in prior year. Profit before tax was 139.2% up at $3.1 million from $1.3 million in the previous year, while profit after tax increased by 87.1% to $2.3 million from $1.2 million in 2015.

Overheads decreased to $33.0 million from $34.2 million in the previous year as Group-wide initiatives to contain costs continued. Controls over shrinkage were effective and will continue to be enhanced.

Capital expenditure for the period was $5.5 million, up from $3.9 million in prior year in line with the performance of the Group. The cost of borrowing was negligible as the Group funded its operations from internally generated funds.

DIVIDEND

At a meeting held on 3 November 2016 the Board decided that it would not declare a dividend and that it would be preferable to channel resources to re-investment in the business.

OUTLOOK

The Group will continue to focus on securing product supply to ensure adequate offering for its customers as well as on cost containment initiatives to achieve profitable operations.

Partial refurbishment will be carried out at OK Gwanda and OK Kwekwe before year-end to improve facilities. Larger stores will be opened at Houghton Park in Harare and in Chipinge in the second half of the financial year. The small outlet of OK Herbert Chitepo in Bulawayo will be closed on 30 November 2016 as the Group continues its rationalisation efforts to improve efficiency.

DIRECTORATE

The Group announces the appointment of Mr. Rutenhuro James Moyo, who joined the Board as an independent non-executive director with effect from 1 August 2016. Mr. Moyo brings to the Board wide business experience which will be of significant value to the Group.

D B LAKE
CHAIRMAN
3 NOVEMBER 2016

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