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 hardpressed 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.-The Herald