eBusiness Weekly
Kudzanai Sharara
Cement manufacturer, PPC Zimbabwe, has the ability to continue in operation as a going concern for the foreseeable future despite the economic challenges currently bedevilling the country.
According to the Audit and Risk Committee (ARC) at parent company and JSE-listed PPC Limited, the Zimbabwean operations will not be affected much by changes that have taken place in the country including currency reforms that have seen the use of foreign currency in the country being outlawed.
Government last month implemented a raft of monetary measures that saw the use of the US dollar, British pound, South African rand and Botswana pula among others, being outlawed in favour of a local currency, which is now the sole legal tender for local transactions.
The move has, however, seen the local currency weaken from being exchanged at par with the US dollar to the current exchange rate of 9 local dollars to the US dollar. PPC Limited, which reports in South African rand, risk making exchange losses as a result. The rand was trading at 1,56 to the Zimbabwean dollar as of Tuesday this week.
But this will not affect the going concern status of the Zimbabwe-based operations.
“Despite the deteriorating economic environment and the challenges being faced with processing of foreign payments by the banks in Zimbabwe, the ARC believes that PPC Zimbabwe has the ability to continue in operation as a going concern for the foreseeable future.”
The Zimbabwean operations are said to have set out an action plan to help ensure operations are not interrupted due to foreign currency challenges that have made payment of foreign obligations difficult.
“PPC Zimbabwe has set out action plans to help ensure that operations are not interrupted due to difficulties in remitting payments to foreign suppliers,” reads the ARC report that was part of the group’s annual report released this week.
It said through the action plans, PPC Zimbabwe is exploring various mitigation methods such as increasing export sales and obtaining a trade financing mechanism facility.
The changes in Zimbabwe’s currency of use, was part of the reasons PPC Limited was downgraded by S&P Global Ratings from “zaA-/zaA-2” to “zaBBB-/zaA-3”.
PPC Limited also had to do its impairment assessment of the Zimbabwe operations and established that “in spite of the economic challenges, the financial performance of the business has been above our internal forecasts and prior, before the impact of the change in functional currency.”
In fact, the inclusion of the Harare mill has improved cash flows.
Following the impairment assessment review, the recoverable amount of US$232 million (R3,3 billion) (2018: US$411 million (R4,9 billion)) PPC Zimbabwe was calculated to be higher than its carrying amount resulting in no impairment.
The reason for the significant decrease in the recoverable amount is due to the challenging economic conditions and the change in the functional currency.
“There are no indications that any reasonable possible change in the key assumptions on which the recoverable amount has been calculated would cause the carrying amount to exceed the recoverable amount of this cash-generating unit,” reads the ARC report.
