eBusiness Weekly
Nelson Gahadza
Truworths Limited says units sold in the full year to July 9, 2023, declined by 33,8 percent due to the suspension of Zimbabwe dollar (ZWL) credit from July 1, 2022.
Like many other firms operating in Zimbabwe, Truworths suspended ZWL credit sales to cushion against balance sheet erosion and ultimate business failure due to an inflationary environment and high interest rates.
“Units sold were negatively affected by the informalisation of the economy, which has resulted in cheap and fake imports selling below local and international manufacturing costs. The business could not viably compete against these imports,” said Bekithemba Ndebele, the group’s chief executive, in a statement of financials.
He said USD credit was introduced in February 2023.
The company noted that unemployment levels and low disposable incomes due to inflation had a negative impact on volumes sold, with customers resorting to buying products in the unregulated informal market at prices that the business could not compete against.
Ndebele said the ZWL$ cash sales value was negatively affected by price controls enforced by the Financial Intelligence Unit (FIU) through the use of the official exchange rate in the sale of merchandise.
“The business maintained competitive US dollar pricing in order to be able to compete on a US dollar basis; translating the US dollar price to the ZWL price at the auction rate resulted in uneconomic ZWL prices and a loss of value,” he said.
During the year under review, the debtors book declined as ZWL$ credit sales were stopped in July 2022.
“This was due to the increase in the prime interest rate to 200 percent per year, which made credit sales unviable for the business. However, the business resumed credit sales in February 2023, but only in USD,” said Ndebele.
Truworth’s said the economic environment continues to be uncertain, unstable, and complex; hence, in order to return to sustainable profitability, the business needs to offer credit in a stable currency and access long-term funding at affordable interest rates.
“Regrettably, these conditions do not currently exist in the Zimbabwean economy. We remain hopeful that currency reforms will lead to stability and improved liquidity,” said Ndebele.
During the year under review, Truworths, to re-capitalise its operations, proposed a renounceable rights offer of 384 067 512 at a price of $5,80 per rights offer share, on the basis of one (1) rights offer share for every one (1) ordinary share held on July 11, 2023.
The approval to raise capital by way of a renounceable rights offer was granted at an extraordinary general meeting of the shareholders held on July 4, 2023, and the rights offer closed on August 9, 2023.
“Of the $2 227 591 570 amount to be raised, $301 000 000 had been raised by the reporting date (July 9, 2023). The resultant balance was settled post-reporting date on August 9, 2023,” Ndebele said.
Investment analyst Enock Rukarwa, said credit sales in an inflationary environment have led to balance sheet erosion and ultimate business failure.
“More so, the economic dynamics of policy inconsistency, especially around the interest rate regime, have negatively affected many businesses, including banks, through their failure to replace stocks,” he said.
He added that the absence of credit sales will have an adverse effect on nominal revenues, but it’s a worthwhile business consideration in light of the elevated cost of borrowing and inflationary pressures.
“Policy consistency and relative economic stability are key enablers for strategic retailing strategies like offering credit sales, but current conditions haven’t been encouraging enough for business organisations,” he said.
