Nampak financial reporting complicated by volatile Zim currency

The financials submitted to the JSE-listed and debt-laden Nampak by its Zimbabwean unit, which has forecast persistent economic and monetary challenges ahead of elections next month, are different from those that it reported to the Zimbabwean Stock Exchange as a result of monetary and exchange rate distortions.

Shares in Nampak on the JSE have been 16.6% firmer during the past seven days and 10.5% stronger during the past month after the regional packaging manufacturer’s shareholders approved a R1 billion rights offer.

The share price of Nampak, which is saddled with debt of R5.2 billion closed Friday’s trade session on the JSE 1.1% weaker.

For Nampak Zimbabwe, the rapid changes in currency regulations in Zimbabwe resulted “in the differences between the reported financial information and the numbers submitted to the parent” shareholder.

Zimbabwean companies are battling for compliance with international financial reporting standards as a result of volatility in the Zimbabwe dollar and changes in its currency framework. These have seen audit companies toughening up reviews and giving adverse opinions against reporting entities in Zimbabwe, most of whom have been missing reporting deadlines.

After the introduction of the Zimbabwean RTGS currency in 2019, Nampak Zimbabwe applied the exchange rate of 1:1 to the US dollar as mandated by the central bank. It however “reported the financial information in hyperinflation terms by uplifting” the October 2018 opening balances.

“This treatment resulted in the differences between the reported financial information and the numbers submitted to the parent shareholder which complied fully with the IFRS reporting framework,” the company said in notes to its financials for the half year period to end March 2023.

This difference, it added, had resulted in “the qualification of the local statutory financial statements as they did not comply with” financial and accounting standards.

This was in relation to the “effects of changes in foreign exchange rates with respect to comparative financial information on property, plant and equipment, depreciation, deferred tax and retained” earnings.

Nampak Zimbabwe has now aligned the current and comparative financial information with the Nampak group reported financial information which is in compliance with the IFRS reporting framework.

It warned though that investors in the company should “note the inherent challenges of converting the financial statements into a stable currency given the contrasting exchange rates prevailing” in the country.

And with Zimbabwean listed entities still required to report their financials in the functional Zimbabwe currency, fresh headaches have appeared in terms of translating US dollar earnings to the Zimbabwean dollar owing to the volatility of the Zimbabwean dollar.

This comes as Zimbabwe is battling currency volatility that has resulted in elevated inflation and exchange rate distortions that are now eating into real value realisation for investors.

The Confederation of Zimbabwe Industries now fears that the government will continue to control the exchange rate, especially ahead of the August 23 elections, although in the past few weeks there has been some stability in the exchange rate on the back of tight money supply control.

Nampak Zimbabwe expects the volatile multi-currency environment to continue “with the election season upon us”. This is in addition to executives’ anticipation that “the overall situation facing the economy remains” challenging.

“The deteriorating inflationary trends will continue to exert further pressure on wage increases (as) a consequence of the multi-currency environment the group is operating in,” said group MD John Van Gend. “We anticipate that the group will remain profitable through to year end although exchange rate volatility will affect raw material supplies.”