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Financial results reflect ailing economy

A FLURRY of financial results have come to the market in the just ended reporting season with the figures projecting a picture of an economy paralysed by biting liquidity problems and general economic decline.

Chris Muronzi

The figures by and large show that the majority of the counters reflected either moderate or negative top or bottom line growth.
Other results showed mounting pressure on the bottom line from increased provisions, high finance charges and negative revaluations reflecting the deteriorating economic climate, analysts have said.

Even property firms such as Zimre Property Investments are signing the blues.

ZPI chief Edson Muvingi laid bare the problems besetting his company when he presented his company full year numbers to December 2014. Although his disclosures were confined to the property sector and his company in particular, the problems he highlighted had a familiar ring and touched on the broader economy.

He said tenants had failed to pay rentals; the company had property voids and rising debtors. It was the same story to an extent, but with a different setting.

Muvingi said his company was contending with high levels of debtors. “We are just like banks who are also lending to people who might never pay back,” he said.

And when it comes to recovering such debts, companies are getting no joy.

For instance, Muvingi said auctioneers have run out of storage space for furniture. Against such a background, attaching property is no longer a good idea.

This, analysts say reflects the liquidity problems in the country.
Instead of attaching property, opting for payment terms was a much more prudent way, Muvingi said.

The problems highlighted by Muvingi are not confined to property companies alone.

Additionally, tenants are demanding lower rents, he said.
Even banks have to contend with such problems of bad debts.
The Reserve Bank last year said non-performing loans (NPLs) stood at almost US$800 million.

An NPL is when payments of interest and principal are past due by 90 days or more, or at least 90.

A special purpose vehicle, Zimbabwe Asset Management Corporation (Zamco), was set up last year to deal with bad loans.

Zamco intends to clean up and strengthen banks’ balance sheets and provide them with the liquidity to fund valuable projects for the economy to rebound and to mitigate loss of confidence.

MMC Capital warned in July that the cut back on lending would “have a huge bearing on the economy as the reduced credit supply will lead to working capital challenges and in many instances businesses” failing to fund capital expenditure.

“The net result will be a decline of private gross fixed capital formation and private consumption which in turn will negatively impact on economic growth,” MMC said. “In a high NPL environment, banks increasingly tend to carry out internal consolidation to improve the asset quality rather than distributing credit.”

A number of financial institutions have obtained writs of execution to attach property to recover the money from defaulting clients.

Every week, national newspapers are awash with auction adverts.

Rentals stood at US$3,6 million, 7% down compared to FY13 owing to pressure from tenants to reduce rentals.

Project sales of US$2 million came from land stocks the company had, 26% down compared to the same period in FY13.

Revenue was not spared at US$5,6 million, showing a 15% decline from US$7 million in FY13.

The company collected 90% of rentals from tenants.

Another firm, Lafarge Cement Zimbabwe’s after-tax profit plunged to US$80 950 from US$3,4 million in the full year to December 2013 owing to a reduction in sales volumes and weak demand.

Finance costs also ate into the company’s bottom line with a charge of US$934 350, up from US$692 677 in the prior period.

“Although trading conditions are expected to remain difficult in 2015, I continue to be optimistic about the Zimbabwean economy,” Lafarge chairman Johnathan Shoniwa said in a statement attached to the company’s full year financial results for the year ended December 31, 2014.

The decline in revenues was largely because of a decline in local sales volumes which tumbled 7% and weak demand in the aggregate market owing to a general economic decline, Lafarge CEO Amal Tantawi said.

She said her group had last year put in place incentives to encourage cash and early payments to embolden a cash payment culture and manage debtors.

Tantawi said the credit facility is accessible to clients who have a good credit rating and the facility runs for 30 days.
She said the company’s credit facility is backed by collateral. “We are very strict post the 30 day period,” she said.
Masimba Holdings was also not spared by the economy.
Revenue tumbled to US$28 million in the full year to December 2014 (FY14) from US$62 million in FY13.
Analysts say the decline in Masimba’s revenues was in line with a declining economy.
The company is owed by the Zimbabwean government.
“Notwithstanding the government’s precarious financial situation, I am pleased to advise that significant progress was made towards the resolution of long outstanding debt owed by the different government departments,” Masimba Holdings chairman Greg Sebborn said.

Sebborn said during the year under review, the economy had maintained a downward spiral, which, coupled with the persistent liquidity challenges, had hit business operations.

“The economic environment deteriorated further in the second half of the year and had an adverse impact particularly on the contracting division,” Sebborn said.

Others fared relatively well.

Ecobank’s net operating revenue increased by 14% between the full year to December 2014 (FY14) and FY13 buoyed by trade finance activities, reduced cost of funds and an increased customer base aided by wider branches and ATMS. Increased braches and ATMS pushed operating costs by 10%

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