JSE-listed entity, Pick n Pay, says its Rest of Africa half year to September earnings were 80 percent lower, weighed down by its Zimbabwe based operations.
The retail giant said the economic challenges in Zimbabwe, where it has a 49 percent stake, had significantly affected its earnings.
“Reported earnings from the Rest of Africa division were down 79,8 percent year-on-year, reflecting difficult economic conditions in Zimbabwe, with the group’s share of associate income now recognised under hyperinflation accounting,” reads the company’s statement accompanying results.
“TM’s trading result in Zimbabwe was at par with last year, although its contribution to income fell on the back of foreign exchange losses and hyperinflation.”
Zimbabwe is going through a challenging operating environment with inflation having reached 175,6 percent at the last official count.
The month-on-month inflation has, however, slowed and stood at 17,7 percent in September down from 18,03 percent in August. The exchange rate also continues to weaken and has lost 84 percent of its value since it was floated back in February.
“Economic conditions in Zimbabwe have been particularly difficult, with businesses and consumers grappling with political and social instability, high levels of inflation, currency devaluation and shortages of staple goods and services,” Pick n Pay said.
In line with the hyper-inflationary environment in Zimbabwe, the group had to apply the provisions of IAS 29 in the recognition of its share of associate income in Zimbabwe.
“This has resulted in a hyperinflation net monetary gain over the period, and a related capital impairment.”
The group’s net asset value was impacted by a reduction in the foreign currency translation reserve of R132,3 million as a result of the translation of its investment in TM Supermarkets at a rate of 12,4 Zimbabwe dollars to 1 US dollar (FY2019: 3,3 Zimbabwe dollars to 1 US dollar).
“The fair value of the group’s investment in TM exceeds its carrying value of R50,4 million and no further impairment is required.”
Although the local business faced some challenges, it was, however, on an expansion drive and recently it opened a state-of-the-art Victoria Falls branch. The Victoria Falls branch brought to 55, the number of retail stores under the group countrywide and is targeting to increase the number to 60 in the foreseeable future. The new retail outlet is one of the anchor shops in the new Victoria Falls (Sawanga) shopping mall whose construction was financed by ZimRe Properties.
ZimRe Properties said it spend more than $13 million on the shopping mall that has changed the complexion of retail business in the resort town.