Zimplow pursues internal forex generation options
ZIMPLOW, a farm implements manufacturer listed on the Zimbabwe Stock Exchange ( ZSE), has said it is pursuing avenues to generate foreign currency internally to finance its operations due to challenges in procuring forex from the auction system.
The company said delays associated with the disbursements of foreign currency purchased on the Reserve Bank of Zimbabwe-run foreign currency auction system had triggered extended supply lead times.
Godfrey Manhambara, the Zimplow board chairman said the company was considering inventing mechanisms that will make the company depend more on internal resources to deal with the growing supply lead times.
According to Mr Manhambara, the company's working capital position has been hard-pressed by the liquidity crunch being experienced in the market currently, a position he alluded to has led to reduced demand consequent to instituted monetary policy measures.
This, however, comes at a time when an increasing number of companies are becoming less dependent on the auction system, as more firms slowly come up with innovative measures to raise foreign exchange through their own means.
As of October 25, 2022, the number of bids at the auction had declined to 167 from over 533 bids in January 2021 as companies continue to enhance their internal foreign currency generation strategies complemented by the growing use of the greenback in the local economy.
In the first half of the year to June, piping products manufacturer Proplastics indicated that it reached 76 percent foreign exchange-denominated sold volumes while Dairibord Holdings indicated that its volumes sold in foreign currency grew by 186 percent in the first quarter to March 2022.
Resultantly, Dairibord foreign currency acquired volumes accounted for 40 percent of the firm's total volumes, up from 17 percent recorded in 2021.
Edgars' on the other hand recently highlighted that a sizable portion of its cash sales was in foreign currency and believed that further relaxation of foreign currency trading would likely increase the US dollar generation mainly to fund imports.
“The group remains focused on realigning the working capital position given the need to rely on internal resources arising from increased lead times, delayed remittance of auction funds, and reduced demand following the liquidity squeeze driven by monetary policy measures.
“The measures to reduce the money supply, such as the suspension of lending in May dampened demand as most agricultural contractors decided to suspend extension of credit to the out-grower schemes in agriculture,” said Mr Manhambara in a statement accompanying Zimplow's financial results for the half year to June 2022.
He said the group was moving to reinforce its balance sheet position by lessening foreign liabilities.
Overall the group recorded a 24 percent growth in revenue compared to the prior year driven by positive operational performance and volume growth in key segments of the group.
Profitability was 64 percent ahead of the prior year supported by a 12-fold increase in exchange and fair value gains.
The group indicated that the challenging trading environment continued to put pressure on its clientele which is now focusing on “value preservation strategies instead of capacity expansion.”
The group is, however, optimistic about better volume uptake given the prediction of a La Nina season in the 2022/23 summer cropping season.