THE board of Edgars Consolidated (Edcon) has proposed an empowerment transaction in which dividends of its subsidiary, Edgars Zimbabwe, will be donated in the form of shares to the Edgars Emp
loyee Endowment Trust Company.
The donation to the trust company is aimed at benefiting the staff of Edgars Zimbabwe, which has outstanding dividends amounting to $630 million over the past three years.
For the year ended March 17, Edgars Zimbabwe chairman, John Mkushi, told shareholders that in light of the inflationary demands on the group’s cash resources, the board had resolved to “pass a dividend” for the current year.
Edcon this week said the donation would be augmented by a direct transfer of shares from its current holding to enable Edgars Zimbabwe to become financially self-sufficient.
The proposal is subject to the approval of minority shareholders and the Zimbabwean authorities. Minority shareholders in Zimbabwe have already approved the conversion. It will however have no impact on Edcon because its investment in Edgars Zimbabwe was written down last year.
“Its results are not consolidated and no income from Zimbabwe has been reflected in Edcon’s results in the past four years,” said Edcon chief executive of group services, Mark Bower, in the company’s latest annual report.
Bower also sits on the Edgars Zimbabwe board.
He said Zimbabwe’s economic environment had deteriorated further in the year to March 27, with inflation spiralling to more than 600% and the currency deteriorating to above $800 to the South African rand.
The rand is currently trading at $863,75 on the Reserve Bank of Zimbabwe auction floor but is going for as much as $900 on the parallel market.
Lower export revenues, particularly from agriculture and tourism, resulted in dire shortages of foreign currency and no funds were available for paying foreign dividends.
Against this background, Edgars Zimbabwe traded well in Zimbabwe dollars, with sales rising by 452% compared to the sectoral inflation of 439%.
Improved efficiencies boosted headline earnings a share to 610%.
But Bower said growth of this magnitude was unsustainable and it was impossible to earn a real return on investment in debtors from interest charges.
“Edgars Zimbabwe cannot indefinitely finance the resultant soaring debtors book. Consequently, credit terms have had to be reduced in the New Year to four months, with an inevitable impact on future sales,” Bower said.
Edgars Zimbabwe recently reported that it was unlikely to meet expectations for its full year financial results after unit sales plunged when it reduced its credit repayment period earlier this year. Unit sales were down 15% compared to last year.