Pick n Pay’s Zimbabwean partner, boosted by firming sales volumes in the TM Pick n Pay chain and the ability to internally fund a store expansion programme, has declared a final dividend of $0.80 (R14.29) per share, bringing up the total shareholder payout for its 2023 full year to $1.65.
Despite rampaging inflation, higher interest rates and other economic headwinds, Pick n Pay’s operations in Zimbabwe are proving resilient. Pick n Pay competes against ZSE listed OK Zimbabwe, Choppies and Spar outlets in addition to smaller indigenous players and informal retailers mainly trading in foreign currency.
The South African grocer, and its Zimbabwean partner, the ZSE-listed Meikles Limited, have been using internally generated finances to rapidly expand the retail chain, bumping up its market positioning in affluent and city areas.
“Despite the reduction in profit margins, the (supermarkets) segment funded its store expansion and refurbishments from operating cash flows,” said John Moxon, the chairman of Meikles, on Friday.
TM Pick n Pay opened three upmarket outlets during the year to the end of February 2023 and an additional two new stores after the end of the reporting period. This comes as the company is “forecast to generate profits and positive cash flows for the period ending 31 July 2024” and beyond, said Moxon.
Revenue from the supermarkets division grew by 44% in the year to February 2023. Despite declining consumer disposable incomes, units sold grew by 2%, staving off competition from a booming informal sector.
Other Zimbabwean companies struggle to stay afloat and face currency and capital challenges that make “planning difficult”. This as President Emerson Mnangagwa, who will square off against opposition leader Nelson Chamisa in next month’s election, wants to regulate against use of foreign currencies to promote the Zimbabwe dollar.
“What we might do is to legislate against foreign currency to make sure we use our own currency. We must never abandon our own currency,” state media quoted Mnangagwa saying on Friday.
As per government policy, Pick n Pay and other formal retailers are mandated to trade in local currency, with an option to accept foreign currency payments using the official exchange rate. This puts them at a disadvantage against the thriving informal sector, and also eats into their bottom lines as some of their suppliers, including foreign merchandisers, require payment for their stock in hard currency.
Despite the liquidity and operational headwinds characterising the Zimbabwean environment, Meikles and the TM Pick n Pay chain have “significant liquidity headroom and sufficient cash reserves to meet its obligations as they fall due” for a period of at least 12 months.
However, it has to strike “a balance in advancing the needs of all stakeholders in a tough trading” environment.
“Supplier payment terms tightened, and the cost of goods escalated in response to high interest rates and inflation. Profit after tax decreased by 40%, (while) in historical terms, profit after tax increased by 254%,” the company said in its trading update.
Gross profit margin across the group dropped by two percentage points to 23% compared to 25% in the previous year, “partly reflecting the impact of the supermarket segment’s strategic thrust on responsible pricing to support customers during challenging” times.
Moreover, the sales mix was dominated by grocery items that have low margins.
Meikles had to review its employee remuneration framework on a regular basis to cushion employees from the rising cost of living in a difficult Zimbabwe economy. Consequently, employee costs increased by 64% and constituted 50% of total operating costs.
“In addition, the increases in costs denominated in foreign currency, as well as electricity and water, were ahead of revenue growth.”
Meikles realised some investment income largely made up of interest on funds on deposit with banks while last year it was boosted by an amount recovered on funds placed with Reserve Bank of Zimbabwe in prior years.
Other foreign companies, including South African Airways, the South Africa Reserve Bank, Eskom and Total are still owed millions of US dollars as part of the Zimbabwean central bank’s $4.2 billion debt. – IOL
