On behalf of the Board of Directors, I hereby present the Turnall Holdings Limited audited financial statements for the year ended 31 December 2019.
There were a lot of significant developments in the country during the year, particularly on currency reforms. At the beginning of the year, the country was adjusting to the separation of RTGS balances and Nostro balances which was implemented on 1 October 2018. This was followed by the introduction of the RTGS Dollar as a currency in February 2019 and the introduction of the interbank market for foreign currency trading purposes. The Zimbabwe Dollar was reintroduced in June 2019, and at the same time the Government abolished the multi-currency system and concurrently directed the use of the Zimbabwe Dollar for all domestic transactions.
Both the RTGS Dollar and the Zimbabwean Dollar suffered significant devaluations. This resulted in significant price increase across the economy. Consequently, inflation grew significantly in line with the currency devaluation. The Public Accountants and Auditors Board advised that conditions for the restatement and presentation of inflation adjusted financial statements had been met effective for reporting entities with financial years ending on or after 1 July 2019. Accordingly, the Group has prepared inflation adjusted financial statements to comply with the International Financial Reporting Standards.
The foreign currency interbank system was unable to meet the foreign currency needs of industry. The country witnessed significant power outages during the year as a result of reduced generating capacity. This affected businesses through increased downtime and increased costs of alternative energy sources.
The combined effect of the above resulted in reduced capacity utilisation for the manufacturing sector and a decline in both production and sales volumes.
In line with the requirements of International Financial Reporting Standards, the Group prepared financial statements using the requirements of IAS 29 “Financial Reporting in Hyperinflationary Economies”. The inflation adjusted financial statements presented, are the primary financial statements with the historical financial statements being prepared for supplementary purposes only.
The Group’s turnover for the year was ZWL231.6 million which is 11% below the previous year. The Group experienced depressed product demand during the year due to low disposable incomes as inflation increased during the year. Despite slightly improved demand in the second half, the Group was constrained by unavailability of foreign currency for the importation of raw materials, high power outages and fuel shortages.
The Group reported profit for the second successive year after years of reporting losses marking the turnaround of the business.
In order to consolidate and sustain the gains achieved the directors will continue with the following measures to ensure that the Group continues to operate in the foreseeable future;
- The Group will focus on increasing the usage of local fibre and reduce reliance on imported fibre, thereby limiting the Group’s exposure to foreign currency shortages;
- The Group continues to implement cost control measures to improve the viability of the business;
- The Group upgraded the fibre cement line to increase capacity and efficiency and plans to upgrade the NuTech fibre cement plant in order to improve the Group’s access to foreign markets;
- The Group will focus on improving product offering to enhance competitiveness;
- The Group will continue to prepay for imported raw materials and spares to avoid significant exposure to foreign borrowings and related exchange losses; and
- The Group will implement technical cooperation initiatives aimed at improving product quality and productivity.
Export turnover improved to ZWL10.5 million contributing 5.0% of turnover from 0.3% in the previous year. This was attributed to the Group’s export strategy that resulted in enhanced presence in the regional markets. In the prior year, the Group was exporting to Zambia only, but increased its market coverage in 2019 to include Mozambique and South Africa.
The gross profit margin for the year was 33% (2018: 35%). The Group was unable to pass on the full cost of production to the customers due to price resistance.
The Group operating costs of ZWL62.5 million were 12% above the previous year compared to revenue decline of 11%. The Group’s costs were affected by significant increases in fuel costs and electricity tariffs during the year. Finance costs of ZWL1.88 million were 65% below the previous year.
The Group reported a monetary gain of ZWL72.4 million (2018:ZWL44.0 million). The Group benefited from its net monetary liability position for both periods.
The profit before tax was ZWL99.4 million (2018: ZWL76.5 million).
The Group utilised all tax losses from the previous years and will pay current tax of ZWL1.9 million for the year 2019.
Property, plant and equipment was revalued by an independent professional valuer as at 31 December 2019. This resulted in a revaluation reserve of ZWL177.3 million.
Board and Management
Mr A. Mashava who was alternate to Mr N. Hayes resigned from the board on 31 December 2019.
The country is going through a difficult economic landscape and there are indications that this may continue during the forthcoming year. The Group will focus on cost containment and exports growth in order to increase sales volumes and obtain foreign currency required for importation of raw materials and spares.
Health Pandemic – COVID 19
In December 2019, a novel strain of coronavirus was reported in Wuhan, China. Subsequent to the year end, the infections have spread across the world and many lives have been lost. The World Health Organization declared the outbreak to constitute a “Public Health Emergency of International Concern.” Many countries across the world, including Zimbabwe, have responded by implementing mandatory lockdowns in order to combat the spread of the disease.
The extent of the impact of COVID-19 on the Group’s operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on our customers, suppliers and employees and government interventions all of which are uncertain and cannot be predicted.
In view of the need to conserve working capital, 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, statutory bodies, other key stakeholders, my fellow directors, management and staff of Turnall Holdings Limited for the support and commitment during the past year. The Group looks forward to your continued support.
By Order of the Board.
Mrs. R. Likukuma