RBZ US$ surrender component affects Truworths

LIVINGSTONE MARUFU

Listed clothing apparel Truworths’ revenue was heavily affected by the Reserve Bank of Zimbabwe (RBZ)’s 20%  surrender component which compels  the  local companies to remit a portion on all local US$ sales to oil the forex  auction system.

In a statement accompanying half year results ended January 9 2022, Truworths said the central bank’s policy has weighed down both top line and bottom-line.

“Revenue performance was adversely affected by the 20% retention on US$ sales which were liquidated at the heavily discounted auction rate compared to the market rate.

“The 20% retention on US$ sales liquidated at the official rate will negatively affect the Company’s cash flows and profitability.

“The 20% retention is effectively a tax on gross revenue.

“The “managed exchange rate” in which local retailers have to price their goods will have a negative impact on the cash flows and profitability,” Truworths said.

The company’s revenue grew 42% to ZWL$314.69m  during the 26 weeks ended January 9 2022 compared to ZWL$221.57m during the same period in 2021.

Truworths was back in the black  following the jump to ZWL$106m during the period under review compared to a loss of ZWL$11.5m during the comparable period.

The first quarter sales were depressed by Covid-19 induced restricted trading hours in the months of July and August.

There was an increase in participation in credit sales due to increased credit granting as month on month inflation eased.

The company said 88.5% of the customers in the credit management book  were in good standing and able to purchase compared to 85.5% in the prior year.

The doubtful debt allowance as a % of gross debtors was 12% compared to 15.2% in the prior year.

The group continues to implement and observe WHO-approved Covid-19 guidelines throughout its operations to safeguard the health and welfare of staff, customers, suppliers and all stakeholders.

The company said it was continuously reviewing its business model. However, the negative effects of Covid-19 restrictions in 2021 are still being felt. Without any further Covid-19 restrictions, the business should continue to recover, it said.

Truworths said the global supply chain is still disrupted and this will continue to affect fabric availability and pricing.

The board deemed it prudent not to declare a dividend due to the current economic environment.

In the outlook, the company expects the regulatory environment and the deteriorating economic environment to  continue to be a hindrance to normal trading.

The resurgence of inflationary pressures necessitates that the business reduces its exposure on credit sales and focuses on cash sales, Truworths said.

The lag in consumer income growth relative to increased inflationary pressures will reduce consumer disposable income, it said, adding that it would focus on improving cash sales and productively controlling costs.