Truworths Succumbs to Informal Traders, Seeks Recapitalization
Harare – Truworths Zimbabwe Limited published the set of financial results for its full-year ended 09 July 2023 almost 8-months later on the 1st of March 2024. The results reflected a sharp decline in volumes against a positive financial performance, reflecting the weight on operations from macro-economic challenges against a commendable management at micro-economic level.
Truworths Limited is a Zimbabwe Stock Exchange (ZSE) listed clothing retailer, incorporated in Zimbabwe in 1957 and operates 14 retail outlets comprised of Truworths Stores, Number 1, Topic Stores, and the manufacturing unit Bravette.
In the 12-months to 09 July 2023, Truworths suffered a -33.8% decline in sales volumes, compared to a 9.5% growth registered in the prior year. According to the company, the emergence of informal clothing merchants offering low-cost and fake imports amid high unemployment levels and low disposable incomes drove customers away from official retailers, who were unable to compete on pricing owing to regulatory constraints that informal traders can easily evade. Truworths also hinted that the decline in volumes was partially due to the discontinuation of ZWL credit on July 1, 2022. As a result, a US dollar credit facility was introduced in February 2023. In-line with the credit facility suspension, cash sales contributed 82% of the aggregate revenue in the period under review, up from 66% in the prior year.
As a result of credit suspension, credit sales contributed 18% to total income, a one-fold decrease from 34% in 2022. Overall inflation adjusted revenue for the year under review was ZWL2.6 billion, a 246% increase from ZWL0.75 billion in the previous comparable year. Due to a substantial increase in exchange gains, the Company’s profit after tax increased by 582% from ZWL0.21 billion in the previous year to ZWL1.44 billion.
However, Truworths stated that, while increased cash sales may be considered feasible in a volatile environment, FIU-enforced price controls using the official exchange rate, which is heavily discounted against the parallel rate, tend to disadvantage the formal retailer through uneconomic ZWL prices and a loss of value in real terms.
The Group stated that it intended to re-capitalize its operations through a renounceable Rights Offer of 384,067,512 or Rights Offer Ordinary Shares with a nominal value of ZWL0.0001 and a price of ZWL5.80 per Rights Offer Share. The proposed Rights Offer is based on one Rights Offer Share for each Ordinary Share owned as at July 11th, 2023.
Truworths stated that approval for the Rights Offer capital increase was obtained at an Extraordinary General Meeting of Shareholders on July 4, 2023, and the offer concluded on August 9, 2023. The Company sought to raise a total of ZWL2,227,591,570 from the Rights Offer, and ZWL301,000,000 had been raised as at the reporting date of 09 July 2023, while the remainder was raised post the reporting date for the financial period under review.
Despite highlighted macroeconomic difficulties, Truworths’ performance during the fiscal year under review was commendable, particularly in terms of financial performance. Key ratios showed a favourable trend, with the current ratio increasing by 26% and the debt-equity ratio improving by 33% as debt receded.
A substantial increase of 116% in cashflow coverage ratio despite a drop in debt levels relative to equity reflects enhanced liquidity levels and the potential to organically fund operations in the future. Furthermore, despite an expected drop in volumes as a result of the broader economy’s informalization, Truworths increased its GP margin from 76% in the previous year to 79% in the period under review. This was due to curtailed costs of sales which are less prone to inflationary pressures due to the company’s control of the supply chain.
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