Pick n Pay brand boosts TM performance as OK Zim rebounds from FY16 nightmare

HARARE,– Zimbabwe’s macroeconomic environment is worsening but for retail business, it continues to offer more business opportunities, higher revenues and profitability.

After  its recent travails, OK Zimbabwe this month announced a good set of financials, coming off a low base.
Competition in the retail business is intensifying, with TM/Pick n Pay continuing to expand while Choppies has increased its presence and the establishment of the new corporate Spar chain.

The momentum appears to be with TM Supermarkets, thanks to its tie-up with Pick n Pay.

OK remains the largest retailer in Zimbabwe with 64 outlets. TM Supermarkets has 58 stores, 15 of which trade under the Pick n Pay banner. The bulk of its product range is imported from South Africa.

Pick n Pay has owned a 49 percent stake of TM Supermarkets since November 2011.

The half-year stakes

OK Zimbabwe

The retailer  had an impressive improvement from the previous year, as profit after tax increased by 87.11 percent to $2,29 million in the six months to 30 September 2016 from $1,22 million recorded in the comparable period last year. The margins also improved from 0.57 percent to 1.05 percent.

Net assets of OK Zimbabwe increased by 4.88 percent to $74,99 million in the six month period to 30 September 2016 from $71,51 million recorded in the same period last year.

TM Zimbabwe/Pick n Pay Supermarkets

Profit after tax increased by 81,52 percent to approximately $4,27 million in the six month period to 28 August 2016 from approximately $2,35 million recorded in the comparable period last year.
Net assets increased by 46,15 percent to approximately $42,91 million in the six month period to August 28, 2016 from approximately $29,36 million recorded in the comparable period last year.

Full-year comparison

OK Zimbabwe

Revenue dropped to $437,5 million in the full year to March 31, from the $462,7 million posted in the prior  period.

Gross margin came in at 16.1 percent from 17.8 percent in the comparable period last year on the back of competitive pricing and sales mix skewing towards low margin products and commodities.

Operating profit margin declined to 0.3 percent from 2.3 percent recorded in the same period previous year. EBITDA decreased to $9,04 million from $17,72 million recorded in the same period in the previous year. EBIDTA margin decreased to 2.07 percent from 3.83 percent.

PAT was down 91.07 percent to $670,000 from $7,53 million previously. Net assets were up 1.82 percent to $72,66 million from $71,51 million previously.

TM/Pick n Pay Supermarkets

Revenue was up 10 percent to $395,3 million for the full-year ended March 31, 2016 relative to the same period last year. The growth was driven by an increase in customer count which increased by 7.6 percent and this resulted in 12.6 percent increase in sales volume.  Its average basket size increased by three percent, an indication that customers were spending more.

Gross margin for the year slightly declined from 19.72 percent to 19.17 percent.

EBITDA for the year was $15.9 million (2015: $9.3 million). EBITDA growth was driven by an increase in sales, better shrinkage control and improved cost management.

PAT increased by 81.52 percent to approximately $4,27 million from approximately $2,35 million recorded in the comparable period last year.

Net assets increased by 58.44 percent to approximately $42,79 million from approximately $27,01 million recorded in the comparable period last year.

Analysts say the substantial growth by TM Zimbabwe can be attributed to Pick n Pay branded shops which are becoming more popular to many customers due to their international standards and provision of a wide variety of products like their counterparts in South Africa. The impact of Pick n Pay can be seen in the table below which depicts revenue and EBITDA trends before and after the branding.

In 2012 TM Supermarkets launched some outlets under the Pick n Pay brand name. Since then, revenue has risen steadily rose from $228,2 million recorded in 2011 to $395.3 million recorded in the full year ended 31 March 2016, representing a 73 percent revenue growth. The group also managed to improve its operating efficiency, with EBITDA margin increasing from 1.71 percent in 2011 to 4.03 percent in 2016.

While OK Zimbabwe recorded more revenue ($437,5 million)  over the full-year period than TM Supermarkets ($395,3 million), its profit was very low at $670,000, relative to the $4,27 million achieved by TM Supermarkets.
Its EBITDA was lower at $9,04 million relative to $15.911 million recorded by TM/Pick n Pay Supermarkets. This implies that more work has to be done at OK Zimbabwe to get rid of its cost base and enhance profitability, thereby maximising shareholder value.

A bright looking future

For OK Zimbabwe, chief operating officer, Albert Katsande said the group opened two OK Mart outlets during the half-year period, in Gweru on July 17 and Victoria Falls on September 1. It also plans to open two more outlets in Houghton Park, Harare and in Chipinge in the second half of the year. These developments could as well improve the group’s financial performance.

Going forward,  the TM/Pick n Pay group is expecting to enhance its financial performance through expansion. Currently it is developing its Borrowdale property, with construction expected to be completed by the end of this year. The group expects the centre to open in the first quarter of 2017. – Source

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