- ZWL credit sales were suspended over record high repo rates and rapid ZWL depreciation
- Current liabilities closed 50% higher than current assets
- The Company recorded a loss during the period
Harare- Listed clothing retailer, Truworths Zimbabwe Limited has introduced United States Dollar (US Dollar) credit sales effective the 1st of April 2023 to offset losses through inflationary pressures and record high-interest rates. This is according to the Company's latest financials for the half-year ended 8 January 2023.
Zimbabwe’s economic woes are mainly due to fiscal indiscipline by the government through the issuance of government securities to settle outstanding amounts to suppliers on the local market. For instance, in March 2023, the government released Treasury Bills, in tranches valued at US$1.4 billion via the central bank, equivalent to about 30% of the national budget and 50% of March 2023’s M1 (currency, demand deposits, liquid assets).
This increased the liquidity glut in the market deflating the Zimbabwe dollar. Due to excess Zimbabwe dollar liquidity, the currency depreciated by a record weekly decline of 14% on the 16th of May 2023 piling inflationary pressures.
The Company suspended Zimbabwe dollar (ZWL) credit sales on the 1st of July 2022 when the Central Bank spiked repo rates by 120 basis points to 200%. The rates were reviewed this year to 150% and currently stand at 140%.
Interest rates at 200% in 2022 and 140% in 2023 are not viable for businesses to finance credits at such rates. Record interest rates curtail productive borrowing resulting in deprived performance due to liquidity challenges.
Despite that, high-interest rates have also an impact on consumer purchasing behaviour. It also reduces consumer spending patterns. It is almost impossible for customers to service their account obligations at rates in excess of 200% or 140% p.a.
However, the suspension of credit sales hit hard on the Company’s financial muscle.
During the period under review, unit sales declined by 45% as credit sales slipped from 38.2% during the comparative period in 2022 to 0.1%.
The sales value performance was also negatively affected by the price controls enforced by the FIU through the use of the official exchange rate in the sale of merchandise.
“The business maintained a competitive US dollar price in order to be able to compete on a US dollar basis,” the Company’s Chief Executive Officer, Bekithemba Ndebele said in a statement accompanying the half-year financials.
However, translating the US dollar price to the ZWL price at the Auction Rate resulted in uneconomic ZWL prices and a loss of value.
This was further exacerbated by the rapid informalisation of the economy which has resulted in illegal imports selling at below manufacturing costs which the business could not compete against.
Current assets closed at ZWL483 million against current liabilities of ZWL974 million, putting the Company’s going forward concerns at risk.
This means the Company’s current assets can not service its obligations to debtors as they fall short by 50%.
From ZWL1 billion last year, revenue halved to ZWL577 million while tax expenses almost tripled to ZWL26 million from ZQL9 million in 2022. This is a testament to an aggressive tax regime in Zimbabwe.
Resultantly, from a profit of ZWL366 million in half-year 2022, the Company recorded a loss of ZWL571 million.
Cash and cash equivalents at the end of the period more than halved to ZWL15 million from ZWL38 million.
The Company anticipates a fragile economic environment in the short term
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