Corporates fret over economy

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Underperformance of the Zimbabwe Stock Exchange and huge voids in the property sector has seen most insurance companies reducing their exposure to traditional assets

ZIMBABWEAN companies have reported modest growth in performance in recent months, but project a lukewarm 2016 on account of mounting external pressures.

Taurai Mangudhla

Problems such as declining commodity prices and a myriad of macroeconomic challenges that include deindustrialisation and lack of capital will also weigh down corporates.

A number of listed companies that have recently announced their half year and full year results for the periods ending December 2015 and January 2016 bemoaned various challenges depending on their sectors, but all project a bleak 2016 mainly on account of low aggregate demand and dwindling spending power among consumers.

Zimbabwe has been hard hit by deindustrialisation which has led to company closures, downsizing and retrenchments.

The workers that remain in formal employment have in some cases suffered wage cuts or lost a number of contractual benefits, significantly reducing their disposable income.

The companies’ projections come after Zimbabwe’s trade unions announced nearly 30 000 workers across various sectors have been rendered jobless as a result of last year’s July 17 Supreme Court ruling which allowed workers to be laid off on three months’ notice without a retrenchment package.

The 30 000 retrenchees added to more than 55 443 workers who had lost their jobs between 2011 and 2014 after a total 4 610 companies closed down as industry succumbed to liquidity constraints and flooding of cheap imports that are often smuggled into the country. Cheap imports and lack of affordable capital disabled industry to retool, making their production cost high due to antiquated equipment.

This has seen industry sinking further with the country’s average industry capacity utilisation slipping from 36, 5% in 2014 to 34,3% in 2015 while the unemployment rate sits around at 85%.
Last week, Zimbabwe Stock Exchange-listed clothing retailer Truworths Ltd gave a dim outlook for the remaining half of FY16 ending July, warning the credit and trading environment would worsen on account of macroeconomic challenges that have triggered retrenchments and company closures.

The trading and credit environment is expected to deteriorate further during the remainder of 2016 as consumer incomes come under increased stress in an environment characterised by job losses, delayed pay dates and reduced earnings, the company said last week in its unaudited group results for the first half of 2016.

“Focus will be on the management of trade receivables so as to maximise cash flows and ensure improvement and enhancement of the quality of the book,” reads part of the directors’ statement. Zimbabwe’s largest banking group by deposits and market share, CBZ Holdings said Zimbabwe’s economic growth slowed further from 3,1% in 2014 to 1,5% in 2015, due to the absence of an immediate economic stimulus package and compounded by unfavourable climatic conditions, low international commodity prices, weakening sectoral linkages and the unintended consequences of a strengthening United States dollar.

“The aggregate impact of the above, was a weakening of economic activity, as evidenced by key measures, especially within the equities markets,” CBZ Holdings chairman Richard Wilde said in the company’s FY2015 results statement published late February.

Activity on the ZSE, was generally depressed in 2015, Wilde said.

“The industrial and mining indices fell by 29,4% and 66,9% to close at 114,85 and 23,72, respectively. Annual turnover also fell by 49,5% from US$452,87 million in 2014 to US$228,60 million in 2015, owing to reduced investor participation,” Wilde said.

“The global economy is expected to remain fragile, characterised by weak commodity prices and volatile exchange rates.

In Zimbabwe, these global weaknesses will, in the short term, be compounded by the adverse effects of the El Nino weather conditions and US dollar appreciation. It is important to note that policy consistency and coherence, investment in infrastructure and promotion of new and old markets are key initiatives for economic growth,” Wilde added.

CBZ Holdings posted an after tax profit of US$35,2 million for the full year to December 2015, up 6,6% on prior comparative period, driven by growth in interest income.

ZSE listed quick service restaurants business Simbisa Brands (Simbisa) has also indicated the company is faced by significant macro-economic challenges such as pressure on disposable income and foreign exchange devaluations in the majority of markets it operates in.

In its half year results for the period ended December 2015, Simbisa said in Zimbabwe, year on year customer counts have increased, although average spending has declined due to downward pressure on consumer purchasing power.

Despite the low spending, Simbisa managed to increase revenues as compared to the same period last year after adding 12 new counters in Gweru, Masvingo, Kwekwe, Bindura and Harare. Simbisa company last year launched various promotions, including off-peak specials, at its fast food outlets to push volumes. Simbisa reported an after tax profit of US$2,6 million after revenue for the six months amounted to US$38,7 million.

Listed Colcom Holdings Ltd recorded an overall decline of 3% in sales volumes over the comparative prior period according to its reviewed abridged financial statements for the six months ended December 2015.

“Colcom Foods increased volumes by 2% overall, however the shift in sales mix from processed o fresh meatcombined with strategic pricing decisions initiated by managementresulted in a lower revenue figure.

“Within the Associated Meat Packersshop, sales volumes declined by 10% against the comparative prior period. The volume decline is directly linked to low consumer demand resulting from tight liquidity in the market,” said Colcom.

Zimbabwe’s largest platinum producer Zimplats recently announced its plan for survival which includes speeding up implementation of energy efficiency initiatives to reduce cost of power, rationalising supervisory and managerial labour, freezing labour recruitment and suspending salary increases for supervisory and managerial employees to cope with the harsh environment.

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