Powerspeed building its business around retailing, says MD

Building the business around retailing: Macklin, right with Gurira

Published: 10 June 2013

Powerspeed has been building its business around retailing, through the Electrosales brand, as the operating environment has been difficult for manufacturing, MD Hilton Macklin told an analyst briefing.

He made the comments at the presentation of September 30 2012 fiscal year financial results which he described as "not too bad under the circumstances, as turnover and bottom line are growing ahead of inflation."

Turnover was up 11% to $29.2 million while GP margins deteriorated 40 basis points (bps) to 28% due to increased pressure on cost of sales.

Profit before interest and tax at $1.39 million was 23% higher than last year with margins improvement to 4.749% from 4.283% because of further containment of operating expenses.

Interest expenses were nearly static, growing by only 1.4% to $676 000 and tax expenses increased in line with profits but overall net profits grew 66% to $535 000 as a result.

"The bottomline to topline ratio (net profit margin) is a bit better at 1.83% against 1.22% last year but we will be working on trying to improve it even more," said Macklin.

He also said they worked hard last year to get product offering improved and get product availability increased.

"We have managed to do it without a substantial increase in stock value, only increasing by 4% to $7.75 million and at the same we have managed to reduce our debtors through active management of receivables. That has enabled us to better utilize our working capital," he added.

He added that 2012 was a difficult year, with industrial customer base very depressed, in particular the Airflo division was very badly hit because they are reliant on capital equipment into the mining industry. Growth came mainly from retail trade.

"To manage the problems in manufacturing, we cut overheads in engineering and redirected resources into trading. We have been building on the ElectroSales brand and we opened a branch in Mount Pleasant."

He said since September there has been an acceleration of branch relocations to new premises. For instance, branches in Msasa, Mutare and Masvingo are now at new premises which are better for retailing and other branches will be improved and relocated as well this year.

"Apart from Electrosales we continuing to build on other brands being Industrial Electric, Electric Cables, WST, Roma Electric Motors which are operating reasonably well," he said.

This will be done through using common infrastructures to limit overhead costs of building the route to market for those products.

Zambia operation had a very good year, contributing significantly to group results, for a change, he said.

Macklin also told the briefing that consumer spending has been growing and he expects it to continue to grow and that Powerspeed intend to grow its market share as well.

"We expect the industrial market to remain depressed but we will maintain capacity with minimum overheads to enable quick response to demand where necessary," he added.

Delay in publication of group results from the traditional December was because of delays in the finalization of audit in Zambia, with Macklin saying operating in Zambia makes Zimbabwean firms feel "we are not so bad after all."

Powerspeed has rebranded quite a number of brands, for instance, Dixons into Electrosales.

"It is the brand we are advertising to the general public while other brands are market specific and will be promoted to those markets directly."

He said there are 14 branches altogether but they are being consolidated into smaller numbers but bigger sizes that give "us the ability to improve the management skills."

There has been an increase in the basket size as we are making the retail experience better, he said.

On supplies, he said they are procuring from all over the world including the Far East and South Africa. Powerspeed always had credit lines from RSA supplies but unfortunately in China purhcases are strictly on cash.

"Probably we are doing more procurement locally than we have done in the past through local distributors and representatives who have become more professional," he added.

Operations director Martin Gurira said the fast moving lines include paint and generators with the latter having "not too good GP" but attract people into the shops.

Macklin said the group has been promoting cash sales and has been a lot firmer with management regarding debtors. He added that they prefer using the working capital to improve the stock offering than chasing low quality sales.

"We are not exposed to any significant debtors. We don't have the government as a debtor, for instance, but have small amounts with some parastatals," he said in conclusion.

- Zfn