Zimbabwean companies managed to stay afloat and create profits despite inflationary pressures that took place as 2018 went to an end. Inflationary pressures refers to the demand and supply side pressures that can cause a rise in the general price level.
Zimbabwe witnessed inflation last year after the Minister of Finance Professor Mthuli Ncube introduced austerity measures to spur stalling growth. Austerity measures include temporary policies to reduce government spending and increasing the tax base of a country. President Emmerson Mnangagwa, explaining the effects of such policies had warned that the measures involved are “painful measures” to get Zimbabwe’s “national budget under control.”
In their Unaudited Abridged Financial results of the Half Year to December 2018 companies revealed how they managed to pull through despite such inflationary pressures created as the year came to an end.
Simbisa Brand Limited and the National Foods Holdings Limited agreed that they had to adjust prices in response to the inflationary pressures.
“The second half of the period was characterised by a significant increase in inflation,” National Foods Chairman Todd Moyo says. In response pricing regrettably had to be adjusted substantially in most categories in order to maintain viability.
Simba’s Chief Executive Officer Basil Dionisio says in a report, “The Group’s response has been to focus on disciplined cost of sales management and controlled price adjustments necessary to maintain our margins.”
Innscor Africa Limited, which owns shares in many companies including National Foods; and Axia which owns TV Sales and Home, and Transerve revealed an increase in making profits despite the inflationary pressures.
Innscor recorded $489.893m in the half-year of 2018, a 61% growth on the comparative period.
“The Group’s well-priced raw materials pipeline, distortions in margins arising from stock replacement policies, an improved sales mix, continually improving factory efficiencies, volume-driven conversion and distribution efficiencies, and the lag in inflation on operating expenditure, translated to improved margins and a satisfactory growth in operating profit over the comparative period,” Innscor says.
Axia Chairman, Luke Ngwerume says, “Despite the inflationary pressures on costs, the Group sustained growth in profitability by recording an operating profit of US$22.368 million, representing a 68% growth on the comparative period.”
Besides inflationary pressures companies also met other economic challenges including foreign currency shortages.
Simbisa CEO says the Group also had to act decisively in order to raise sufficient foreign currency to meet foreign royalty fee obligations, capex and Intellectual Property-related raw material imports.
“A decision was made in December 2018 to discount our prices where payable in US Dollars in order to raise the foreign currency to meet these critical obligations,” Dionisio says.