Mixed fortunes for firms in first quarter

17 May, 2020 - 00:05 0 Views

The Sunday Mail

Tawanda Musarurwa

Zimbabwean businesses largely managed to escape the full wrath of the novel coronavirus pandemic as the country’s lockdown was implemented at the tail end of the first quarter.

The local operating environment was already facing significant headwinds from rising inflation, currency volatility and waning demand.

“Economic fundamentals remained fragile in the quarter under review with the country now expected to have registered a negative economic growth rate for the year,” said analysts at Akribos Research Service in a Q1 (first quarter) economic report.

“Inflation remains a major concern for the economy with the latest figures showing month-on-month inflation remained above the 10 percent target set by the Ministry of Finance and Economic Development.

“Month-on-month inflation went up by 2,439 basis points in March 2020 to 26,59 percent from a year-to-date low of 2,2 percent recorded in January 2020. The spike in inflation witnessed in the first quarter and part of the fourth quarter of 2019 was largely due to the depreciation of the local currency.

“The depreciation of the new local currency created increased inflationary pressures that outweighed the Reserve Bank of Zimbabwe’s inflation fighting strategies. In 2019 official year-on-year inflation figures had last been released in June 2019 (at 175,66 percent) and the latest figures released showed that the country’s official year-on-year inflation as at March 2020 was 676,39 percent.”

So, the Covid-19 pandemic notwithstanding, it was always going to be a difficult quarter for most local firms. An analysis of the first-quarter performance of listed firms show mixed performances across firms and sectors, but the one constant is that the outlook for the second quarter going forward is not encouraging.

Construction firm Masimba Holdings reported an 86 percent rise in inflation-adjusted turnover from the comparative period “owing largely to the improved order book mix and productivity efficiencies across the projects.”

Masimba said most of its projects “progressed satisfactorily” over the three-month period.

FBC Holdings had a positive out-turn over the quarter, with the group’s total net income growing by 88 percent from $337,3 million to $635,3 million on a comparative basis.

During the same period, listed insurer Fidelity Life Assurance’s core revenues grew 45 percent to $48 million, from $33 million in the prior comparable period.

The group’s total revenue performance was further boosted by net investment income, resulting in a 45 percent growth in total revenue to $180 million compared to $124 million in the comparative period.

Fidelity Life said all its subsidiaries recorded a steady growth on the top line for the first quarter, with the Malawi business and balance sheet growth in Fidelity Life Assurance of Zimbabwe being the key drivers.

Profit before tax was, however, down 7 percent from $86 million as at March 31, 2019 to $80 million this first quarter, attributable to “a sharp increase in total expenses largely driven by inflationary pressures currently being experienced in the operating environment and continuing to be weighed down by re-estimation of foreign denominated project completion costs for Southview water works amounting to $49 million (50 percent of total expenses) driven by the weakening of the local currency.”

General Beltings’ volumes for the quarter were up 38 percent prior year comparable.

Over the same period, which also covers Truworths Limited’s third quarter, the clothing retailer largely met its set targets for the three months despite operating for one week due to Covid-19.

Truworths’ management reported a 389,2 percent increase — in nominal terms — in sales for the quarter from last year’s third quarter.

But on a comparable 12 week basis, sales increased by 439,9 percent.

However, in volume terms, units sold for 12 weeks were 35 lower compared to the 13-week period last year, and on a comparable 12-week basis, units sold were 29 percent lower.

The group said cash collections from debtors were in line with expectations for January and February, while for the last month of the quarter they achieved 87,3 percent targeted collections due to the lockdown.

Truworths’ profit before tax was up 443 percent compared to prior year.

Mining firm RioZim Limited saw gold output slide in the first quarter, a 41 percent dip from the prior comparable period. The company can, however, leverage on global investors piling into the yellow metal even as the Covid-19 pandemic worsens.

RioZim said the gold price was favourable, averaging US$1 562 per ounce (oz), which was 17 percent above the average price for the same period last year of US$1 336 per oz. Zimre Holdings said for the first three months of 2020, rental income performance for key subsidiary Zimre  Property Investments Limited, was on budget “on account of the quarterly rental reviews being implemented and reconfiguration of existing rental space for other uses in line with market demand and move towards turnover based leases.”

Meikles Limited experienced mixed trading across its portfolio.

The supermarkets division saw sales volumes slide 10 percent during the quarter, while hospitality room occupancy retreated by 20,8 percent for the quarter.

During the period, Bindura Nickel Corporation managed to boost production, as tonnes milled rose  by  5 percent to 112 266, up from 107 247 in the prior quarter.

However, the production of nickel in concentrate  decreased by 14 percent  to  1 281  tonnes during the period due to a decrease in ore grade.

Turnall Holdings’ reported a 45 percent increase in sales volumes for the quarter compared to the prior comparable period, export sales volumes accounted for 4 percent of total turnover, up from nil in the previous year.

Zimbabwe is about to complete its second straight month under a Covid-19-induced lockdown, and most firms have been operating at below capacity.

And as a result of the subdued operations, firms have been cutting jobs and/or reducing wages, which has hit consumers’ ability to spend. It’s a vicious cycle as companies are now struggling to find buyers for their products and services.

Even for exporters, the issue of reduced demand is now a big factor.

The continued spread of the Covid-19 pandemic has abruptly stalled global demand and disrupted global supply chains. But with Zimbabwe’s lockdown only commencing at the very end of the first quarter, a more clearer picture of its impact on local businesses will be more apparent from companies’ financials from the beginning of April.

 

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