eBusiness Weekly
Business Writer
Diversified packaging company and Zimbabwe Stock Exchange-listed entity Nampak Zimbabwe, recorded strong volume growth for the 11 months to end-August 2019, but currency changes resulted in exchange losses running into millions of dollars.
According to parent company Nampak International, in a trading update released this week, the strong performance from Zimbabwean operations had actually helped offset weak performance in Angola and South Africa where revenue was down.
In contrast, the Zimbabwean operations recorded revenue and trading profit growth at two of its units Megapak and CMB.
“The Zimbabwean operations CMB and Megapak improved profitability despite lower volumes in the second half. Limited demand for certain products in a challenging economy and the unavailability of foreign exchange currency for raw material purchases will, however, limit the annual results,” said Nampak International.
Volumes growth was also recorded at Hunyani with exports making notable contribution. The Hunyani operations, however, faced liquidity challenges with production dependent on ability to source raw materials.
“Increased exports to neighbouring countries enable forex earnings,” said Nampak International.
As a result, raw material inputs into Zimbabwe are now being funded by US dollars from sales and exports.
“No funding has been provided to our Zimbabwean operations from the Nampak Group since April 2018; with these operations securing adequate hard currency to support importation of the required materials to meet market demand.”
However, monetary changes in the country saw operations report exchange losses of R73 million for the period on unhedged monetary items.
In June, the Zimbabwean Government banned local trading in foreign currencies, including the US dollar, which had been the anchor and reporting currency for companies.
President Emmerson Mnangagwa said the ban was an “important step in restoring normalcy to our economy”.
“While the multi-currency regime helped stabilise the economy, it did not give us control of monetary policy and left us at the mercy of US dollar pricing, which has been a root cause of inflation,” he added.
The authorities also say because the US dollar is so strong, producing goods locally is expensive which is why businesses prefer to import goods.
The Zimbabwean dollar has, however, significantly devalued resulting in foreign parent companies reporting exchange losses.
In terms of assets, property plant and equipment were devalued by R441 million while bank balance was reduced by R738 million.
A R1,2 billion forex loss was also recorded on translation in other comprehensive income.
Translation of forex difference in other comprehensive income at Group level — impact R599 million.
“The effects of changes in foreign exchange rates — include US dollar loans to Zimbabwean operations as part of net foreign investment,” said Nampak International.
Another debt of US$57 million which was owing from Nampak Zimbabwe was assumed by the Government of Zimbabwe through the central bank.
Early this year, the Central Bank directed all financial institutions to transfer to the RBZ the local currency balances they are holding as counterpart funds for the foreign currency historical or legacy debt which Government assumed at the rate of 1:1 between the local currency and the US$. Nampak agreed that its funds, which are part of the US$1,2 billion, will be paid back through quarterly repayments over a three-year period.
“The availability of foreign currency in Zimbabwe remains challenging and only R40 million or 3 percent of the opening cash position of R1,2 billion was transferred for the period.”
