On behalf of the Board of Directors, I hereby present the Turnall Holdings Limited abridged unaudited financial results for the half year ended 30 June 2019.
The first half of the 2019 financial year witnessed several key changes in the macro-environment that included a change in the functional currency from US dollars to RTGS dollars on 22 February 2019, and the subsequent introduction of the interbank foreign currency market. Towards the end of June 2019, statutory instrument 142 of 2019 prescribed the Zimbabwe Dollar as the sole currency for legal tender purposes, thus removing the use of multi-currency system. Although the various measures were meant to stabilise the economy, business struggled to cope with the rapid changes.
The Group faced challenges with securing foreign currency for its imports of raw materials and spares.
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Inflation increased as prices tended to continue tracking the foreign currency market movements. Prices of commodities increased significantly as industry went through a period of price re-discovery and some speculative tendencies became more rampant.
In order to reduce borrowing for speculative purposes the Reserve Bank of Zimbabwe increased overnight accommodation interest rates from 15% to 50%. The liquidity constraints witnessed in the market resulted in reduced aggregate demand across the entire construction industry.
The Group experienced depressed product demand during the first half due to low disposable incomes, economic hardships and inflation. The Group had adequate supply of product available for sale in the market and took the opportunity to build up inventories in advance of the peak sales period in the second half.
Towards the end of the second quarter, the Group began exporting to Mozambique after experiencing significant demand for roofing products.
The Group’s turnover for the half year increased to $25.0 million compared to $13.5 million in the prior comparable period.
The Group reported profit from operations of $6.8 million from the previous comparable period’s profit of $2.5 million. Finance costs declined to $0.3 million from $0.4 million due to the impact of favourable debt restructuring.
Profit before tax was $6.5 million compared to $2.1 million in the previous comparable period.
The income tax credit to the income statement arose from the unwinding of deferred tax asset balances. The Group did not pay any current taxes, as it utilised the assessed tax losses generated in prior years.
The net current asset position at the end of the period improved to $5.7 million from $2.2 million as at 31 December 2018. The Group’s interest cover was 23.1 times compared to 6.8 times in the same period last year. Net borrowings were 41% of shareholders funds compared to 80% at year end.
The Group’s cash generated from operating activities was $2.0 million compared to $0.6 million in the previous comparable period.
Board and Management
There were no changes to the Board and executive management during the period.
Liquidity constraints are starting to surface in the economy and are expected to continue, this will have an adverse impact on the demand for the Group’s products. The Group expects marginal growth of volumes in the second half, relative to the first half, as this is the peak period for roofing projects. There is evidence that long overdue work on rehabilitation of water and sewage infrastructure is now taking place and the Group has maintained its pipe making capacity in order to satisfy demand from this sector.
The Group has now focused on the regional market and expects to export to South Africa and Mozambique in order to generate foreign currency. The Group expects exports to increase significantly compared to the previous year.
The Group will improve cash generation to reduce borrowings after the significant increase in interest costs at the end of the period under review.
In view of the Group’s plans to reinvest funds into the business to maintain and expand operations, the Board has resolved not to declare a dividend.
On behalf of the Board of Directors, I would like to express my sincere appreciation to our customers, suppliers, creditors, statutory bodies and other key stakeholders, my fellow Directors, management and staff of Turnall Holdings Limited for the support and commitment during the period under review. The Group looks forward to your continued support.
By Order of the Board.
Mrs. R. Likukuma
30 August 2019