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Truworths Zimbabwe balance sheet shrinks

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Listed apparel retailer Truworths Limited’s balance sheet shrunk significantly in the six months to January 5, 2020, due to current hyperinflationary environment characterised by a massive devaluation of the local currency.

At the same time, the devaluation of the Zimbabwe dollar has resulted in disposable incomes being heavily eroded a situation which is negatively impacting on Truworths and other retailers.

According to its inflation-adjusted financial results, published last week, the group’s total current assets shrunk 18% to ZWL$42.8m during the reviewed period from ZWL$57m in the prior comparative period.
The group’s total assets went down 15% to ZWL$70m from ZWL$82m reported in 2019.

Assets are the base of any company. And the shrinking of assets is a dangerous signal. And when a balance sheet, which reports the financial position of a company on a specified date shows such a downside happened, it begins to draw attention, analysts said this week.

Although the value of inventories increased 50% to ZWL$26m in the reviewed period from ZWL$17m in the same period the previous year, debtors or receivables declined 45% to ZWL$17m from ZWL$30m in 2019.

Truworths CEO Bekithemba Ndebele told Business Times yesterday that hyperinflation was biting the company and ravaging the economy resulting in consumers purchasing power eroded significantly.
“If you look at current salaries, consumers’ purchasing power has been eroded by inflation, a reasonable measure being the loss of Zimbabwe dollar value against (major currencies).

Once the purchasing power is eroded the customer’s credit entitlement is impaired and due to that they buy less on credit, unless of course their income goes up to afford the installments,” Ndebele said.
Cash and cash equivalents stood at ZWL$2m from ZWL$4m in 2019.

On the other hand, the company reduced current liabilities by 42% to ZWL$22m from ZWL$38m inCreditors or payables were 8% down to ZWL$11m from ZWL$12m. Differed tax came down 37% to 5m from ZWL$8m.

The group’s revenue grew 13% to ZWL$37m from ZWL$33m.

Trading expenses shot up 35% to ZWL$20m from ZWL$15m. The company reported a 78% increase in trading profit to ZWL$5m from ZWL$3m. Finance costs more than doubled to ZWL$3m from ZWL$1.4m. Net profit for the period was 43% up to ZWL$7m from ZWL$5m recorded in the same period in 2019.

Gross margin grew to 66% from 59% while trading margin stood at 15.1% from 10.7%. Operating margin went down to 24.2% from 28.8%. Trading expenses to revenue from contracts with customers were
up 59.7% from 55.2%.

“Affordability was an issue to discretionary income lagging inflation. Product volumes and availability were constrained due to a shortage of foreign exchange and local liquidity which adversely affected the local supplier base.

Imported international brands volumes have come down. We successfully launched our own branded fragrances in February this year,” Ndebele said.

Looking ahead, Ndebele expects the pressure on discretionary spending and foreign exchange to persist in the short to medium term.

He said the company will continue to focus on moving the business towards cash sales and productive cost management. He, however, said the company would not abandon the credit model.

“Due to hyperinflation we would like to sell more for cash rather than credit to minimise loss of value.
We are not abandoning our credit model,” Ndebele said.

Source: – Business Times