Delta finds a way around Zim’s blended inflation

Delta Corporation Limited argues that the official exchange rate does not reflec what it is experiencing

The beverage maker Delta Corporation Limited decided against using the blended inflation figures from the Zimbabwe National figures Agency (Zimstat) to determine its financial results for the year ended March 31, 2023, since they are not indicative of market trends.

In March, the government abandoned the Zimbabwe dollar-priced inflation statistics and moved to a weighted average of items priced in both the local currency and United States dollar, a move that experts warned was not truly market reflective.

This is because the base pricing and accounting currency remains the Zimbabwe dollar despite the rapid increase of the United States dollar on the market, as dollarisation continues to accelerate.

Delta's reluctance comes at a time when the company reached a valuation of US$729,3 million as of Tuesday last week by local financial services firm IH Securities, on the Zimbabwe Stock Exchange. This valuation makes it the most valuable listed firm.

“This year, we not only had the problem of foreign currency exchange rates and things like that, but we also had the issue of IAS 29 and our very good government deciding on March 3 that they will only publish something called blended CPI (Consumer Price Index),” Delta's financial director Alex Makamure said during an analysts briefing on the company’s financial results for the year ended March 31, 2023.

“I will try and explain how we have gone around that, but I think we agree that the IAS 29 issue whilst it’s a nuisance, it is a bit of an issue that we could work around," he said.

“The one on exchange rates still remains an issue that we have with our auditors.

“As you see the numbers, I wasn’t sure if they were presented in Zimbabwean dollars because I saw some reports that said ‘we do not read those numbers, inflation adjusted, neither do we trust your cost mantras.’

“They are real, but they are not making sense. So I do not know what you will make of our presentation.”

He added: “Inflation – I was afraid of being arrested so we had to use a term that is within what is being published by Zimstat which is that of the ‘Total Consumption Poverty Datum Line’ which fortuitously was very close to, in March – seemed to be nearing what was dropped in January.”

The Zimbabwe dollar has depreciated significantly, causing the firm’s monetary loss to widen by nearly 50% to $34,84 billion during the period under review.

“I think it was 206% (annual inflation statistics at the end of the reporting period) but our own calculations come to 204% but we are not publishing, we are just using it,” Makamure added.

IAS (International Accounting Standard) 29 — Financial Reporting in Hyperinflationary Economies refers to where an organisation uses the currency of a country experiencing hyperinflation.

Under these conditions, while the standard does not specify when hyperinflation occurs it does, however, require a company to restate its financial statements and comparable data for prior periods.

The restatement is done to account for the general decline in the purchasing power of its functional currency due to hyperinflation.

Owing to the massive depreciation of the local currency, Delta does not believe that the official exchange rates prevailing during the period under review were always fairly reflective of the currency exchangeability.

“International Accounting Standard 21 (IAS21) — The effects of Changes in Foreign Exchange Rates — require an entity to determine the functional currency based on the economic environment in which it operates,” Delta said.

“The entity does not believe that the official exchange rates prevailing during the period under review were, at all times, fairly reflective of the currency exchangeability and as such, has used an estimation process, which is allowed by IAS 21.

“Therefore, the exchange rate applied in translating foreign currency transactions to the reporting currency and as the spot rate used in translating other foreign balances has at times differed from the official rates.”

Amid the absence of Zimstat’s old CPI statistics for the months of February and March, Delta’s estimated inflation annual rate for the period was guided by “experts, currency movement factors and proxy data: — for example total consumption poverty data line from Zimstats.”

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