Red ag over BAT blocked funds
International accounting standards violated as RBZ delays
EXTERNAL auditors have raised the red flag over lack of a legally binding instrument for an amount of US$15,7 million in blocked funds transferred by the Zimbabwe Stock Exchange-listed cigarette processor British American Tobacco (BAT) to the central bank in 2019.
The Reserve Bank of Zimbabwe (RBZ) at the time ordered companies with foreign liabilities and legacy debts to register with exchange control authorities to be able to receive foreign currency allocations towards the settlement of these debts.
The move was necessitated by foreign currency shortages in Zimbabwe.
BAT’s funds related to outstanding dividends and payments to foreign suppliers.
It emerged last week that by the end of 2020, the RBZ had not released the US$15,7 million and BAT accounted for the liabilities at the rate of US$1: $1, which was the prevailing rate when the directive was issued.
The official exchange rate at the foreign currency auction system was about US$1:$83 at the end of last year.
In a note to BAT’s financial results, auditors at KPMG said they were also concerned about violation of international accounting standards as a result of the liabilities.
“As described in note 14 to the inflation-adjusted consolidated and separate financial statements, the group and the company has continued to account foreign liabilities amounting to US$15,7 million, for outstanding dividends and to foreign suppliers registered and approved as blocked funds on a 1:1 basis being $15,7 million as included within the trade and other payables balance, as the directors believe the Reserve Bank of Zimbabwe will assist the company in sourcing foreign currency at that rate,” said KPMG.
“As at the date of this report, an amount of $15,7 million has been placed with the RBZ through authorised dealers and recognised within the trade and other receivables balance under current assets. No legally binding instrument had been issued by the RBZ to confirm the contractual terms supporting settlement of the approved blocked funds. This is not in line with the requirements of IAS (International Accounting Standard) 21; The Effects of Changes in Foreign Exchange Rates, which requires foreign currency-denominated liabilities to be translated at the closing spot rates at the respective year end.”
According to BAT, following the registration of the blocked funds, the $15,7 million was transferred to the RBZ to facilitate the settlement as agreed.
BAT said it incurred $383,61 million in exchange losses during the year ended December 31, 2020 from $277,51 million during the comparable period in 2019.
BAT’s revenue increased 40,36% to $2,07 billion during the review period from $1,47 billion during the comparable period in 2019, driven by price increases and earnings from cut-rag tobacco exports.
However, volumes slowed down by 12% as the domestic market was affected by a slide in disposable incomes after a difficult year when the pandemic forced firms to shut down and send staff home to escape the scourge.
“In March 2020, the company started exporting cut-rag to generate foreign currency that is required to continue with normal operations of the business,” said BAT.
“The directors assess that the export business will be very pivotal in strengthening the future development, performance and position of the company,” BAT added.
BAT bounced back to an inflation-adjusted $256 million pre-tax profit during the review period, from $26 million in 2019.
“The company’s premium brand, Dunhill, returned to the market in March 2020 as the company was now able to import the brand and as a result, it recorded a significant increase in volume growth of 1,481% versus prior year,” said chairman Lovemore Manatsa.
“In the Aspirational Premium segment (Dunhill Kingsgate and Dunhill Newbury), volumes declined by 45%. In the Value for Money segment (Madison and Everest) and Low Value for Money brand (Ascot), volumes declined by 8% and 47% respectively. This reduction in sales volumes was driven by shrinking consumer disposable incomes due to the challenging economic environment and the Covid-19 pandemic’s impact on sales,” said Manatsa.
In terms of liquidity, BAT had a current ratio of 1,24 showing the company could cover its liabilities should they become due.
Manatsa said the company would continue to transform as the pandemic continues, to protect shareholder value.