Zimbabwe: Bloodbath On ZSE As Firms Feel the Pinch

Zimbabwe is experiencing its worst economic crisis in a decade, characterised by hyperinflation, acute foreign currency shortage and rolling power cuts of up to 18 hours per day and industry is feeling the strain.

With the southern African country's fragile economy now reeling under severe hyperinflationary headwinds, blue-chip counters on the local bourse such as PPC, National Foods, and Delta Corporation have experienced one of their worst trading spells for the period ending September 30, 2019 characterised by decline in EBIDTA and volumes, losses and reduced dwindling sales.

Beverages manufacturer Delta recorded a 48% decline in larger beer volumes during the half year period ended September 2019 from 1,04 million litres the previous year, forcing the company to adjust prices to maintain its dominance on the market.

The brewer, which is heavily dependent on consumer's spending power, took a knock as incomes were rapidly eroded by spiking inflation.

In January, the brewer announced that it faced the gloomy prospect of halting all its business operations owing to a crippling foreign currency shortage that has paralysed the economy. Sales took a knock as inflation severely eroded workers' incomes.

During the same period under review, National Foods posted a 36% decline in volumes as inflation quickened, coupled with diminishing consumer purchasing power. Flour volumes were most heavily impacted, closing 50% below the previous year. Volumes performance in the groceries (mainly rice and salt) tumbled by 47% n, snacks and treats tumbled by 37%, with stock feeds sales dropping by 25%, as consumers switched to more affordable commodities on the market.

With Zimbabwe now sucked again into a hyperinflation cycle, manufacturers have struggled to push sales volumes.

Economist Christopher Mugaga told businessdigest that dwindling sales were reflective of shrinking consumer income in the face of severe hyperinflationary pressures.

"The decline reflects how companies are struggling in this economic environment. This environment is not good for business. These companies reflect the country's economy and they should be protected. We do not want them to be lagging behind as it is one of the big companies that drive the economy," Mugaga said. "Private consumption has gone down as people do not have money to spend on beer. For example beer has become a luxury in Zimbabwe. People now go for illegal low value products."

Zimbabwe's annual inflation reached an all-time high of 175,66% in June, before publication of annualised inflation figures was suspended. In September, month-on-month inflation retreated 0,35 percentage points to 17, 72% from 18,07% in August.

In October, the year-on-year figures for annual inflation was estimated at 440%.Cement manufacturer PPC's revenue declined by 12% to R4,9 billion (ZW$4,9 billion or US$336 million) compared to the previous year's R5,6 billion (ZW$5,6 billion or US$380 million) as sales took a 17% tumble to close at 2,6 million tonnes.

The group's EBITDA also dropped 17% to R868 million (ZW$876 million or US$59,1 million) from R1,03 billion (ZW$1,04 billion or US$70,7 million) the previous year, resulting in an EBITDA margin of 17,5% from 18,6%. PPC applied a closing rate of 1 ZW$ to 0,99 ZAR for their results.

Moreover, the group results were also impacted by the significant currency devaluation of the Zimbabwean dollar against the firming the South African rand.

When the interbank foreign currency trading platform was introduced in February this year, the local unit was rapidly losing value against the greenback, adversely impacting on the operations of manufacturers.

Currently, the greenback is trading at US$1:ZW$16,3319. At the inception of the interbank trading platform, the exchange rate stood at US$1: ZW$11,9047.

During the same comparative period, hotel and leisure group, African Sun Limited, recorded a 19% drop in room nights sold to 206 454 from 253 661 reported in the same period last year across its accommodation properties countrywide.

Prolonged power outages almost ground mining operations to a halt.Though authorities have ring-fenced power for mining entities at US dollar denominated tariffs, the sector is still unable to access the power.

Diversified mining concern, RioZim's output tumbled 8% to 962kg from 1 050kg achieved in the comparative period in 2018, due to the intractable power crisis.

Nickel producer BNC concentrate sales tonnage slumped 60% during the same period owing to the acute power crisis.

Retail company, OK Zimbabwe also experienced a 23% decline in sales volumes as consumer spending power was emasculated by spiking inflation. South African retailer Pepkor, which runs local retailer Power Sales, recently announced its plans to exit Zimbabwe after suffering a R70 million (US$4,7 million) loss of assets.

Market watchers have cautioned that the departure of Pepkor from the Zimbabwean market showed that the country was not a favourable investment destination.

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