The Sunday Mail
Business Reporter
MOST local companies have been able to steady their performance during the last financial year but deflationary pressures present a big challenge to their operations going forward, experts have said.
Cost-cutting measures have been the key to many firms.
The latest financial results from listed companies representing the spectrum of industry and commerce show a repeated pattern where revenues are declining while profits are growing.
Such an anomaly, market watchers say, indicates that there is no real organic growth taking place.
As demand has continued to slow in a predominantly illiquid market, companies have resorted to job cuts and other cost-cutting measures.
Many companies managed to restructure their costs following a July 17, 2015 Supreme Court ruling that allowed employers to terminate employment contracts on notice.
Banks and other financial institutions also contained rising Non Performing Loans (NPLs) after the Zimbabwe Asset Management Company (Zamco) – a unit of the Reserve Bank of Zimbabwe (RBZ)- took over toxic debts from the institutions.
As at December 2015, average NPLs in the financial services sector stood at 10 percent.
Unsurprisingly, ZB Financial Holdings’ profit leapt 191 percent from a loss of $9,81 million a year earlier to a profit of $8,9 million in the year ended December 31, 2015.
The bank slashed its expenses by 34 percent to $46,3 million from $69,7 million recorded in 2014.
Loan impairment charges dropped 62 percent to $2,9 million from $7,7 million a year earlier.
“Asset clean up continued in financial year 2015, loan recoveries had a significant positive impact on the net impairment charge to the income statement.
“A leaner and more efficient cost structure was the hallmark of performance recovery during financial year 2015,” said group chief executive, Mr Ron Mutandagayi in a recent analyst briefing.
As at December 2015, ZBFH’s NPLs were at 20 percent from 28 percent following transfer of bad debts to Zamco.
Economist Dr Gift Mugano believes that while cost-cutting measures are effective, there is still need to address the root cause of the slowing growth in most companies.
“The major concern is low productivity and this is what the economy needs to address going forward.
“You can cut costs today but what happens next, workers’ commitment needs to be guaranteed too to ensure there is improved productivity. As for financial institutions, they need to improve on deposits and market confidence,” he said.
NMBZ also reported a “strong set of results” for the financial year 2015 after shifting its strategic focus.
Operating expenditure declined 4 percent as staff costs declined 18,4 percent.
The bank’s total income rose 25 percent to $44,3 million; which was above market expectations.
NMB is now servicing not only high-net individuals but the broader market as well.
As a result, the bank has since opened branches in Kwekwe, Masvingo, Borrowdale Excellence Centre and Excellence centres in most branches in the major cities and towns.
A new branch was opened in Chinhoyi in January 2016, while the Angwa City and Joina City branches were merged.
The restructure resultantly pushed NMB’s NPL ratio to 13 percent from 17,7 percent in 2015.
Similarly, the country’s largest media group, Zimbabwe Newspapers (1980) Limited, recovered from a $11 million loss to register a $2,7 million profit after a staff rationalisation exercise and other cost-containment interventions reduced costs by 26 percent.
Operating expenses dropped by $10 million to $28,5 million during the year.
Interest expenses also fell 10 percent to $1,5 million following the conversion of borrowings into medium-term paper.
Asbestos manufacturer Turnall Holdings reported a 14 percent decline in revenue to $29 million in the 2015 fiscal year, but gross profit improved after selling and distribution expenses were cut by 26 percent to $1,4 million from a year ago.
Furthermore, administration costs tumbled 71 percent to $3,8 million on “strict cost control measures put in place and the elimination of non-recurring expense line items which impacted the prior year”.
Equities and investments analyst, Mr Albert Norumedzo said companies have adopted a business survival model that is based on defending margins through cost structure rationalisation, cost effective service delivery channels and effective working capital management.
“The top line is expected to further decline as aggregate demand weakens due to deteriorating economic capacity from abating economic fundamentals which are eroding effective demand,” he said.
