General Beltings Holdings Ltd (Zimbabwe) releases its 2021 Annual Report

By Published On: June 24th, 2022Categories: Corporate announcement, Earnings
General Beltings Holdings Limited 2021 Annual Report

General Beltings Holdings Limited (GBH.zw) 2021 Annual Report

Managing Director’s report

The headwinds in the economy were unrelenting dominated by the continued shortages of foreign currency and delayed funding of successful bids at the auction. Although the official auction exchange rate increased steadily, the unfunded gap of foreign exchange requirements triggered increases in the parallel market that perpetuated a hyperinflationary spiral which further dampened downstream aggregate demand.

The COVID 19 pandemic in its multiple variants was mitigated by the various regulatory interventions and morphed into less virulent strains which enabled the relaxation of lockdown measures at ports of entry and enabled businesses to open up. However, the violent rioting in South Africa and the cyber-attack on Transnet intermittently disrupted the flow of raw materials as logistical supply chains had to cope with increased traffic.

To counter the effect of continued depressed demand of the company’s products, focus was on consolidating market positioning in niche markets established in the prior year while continually delivering a commensurate value proposition to its traditional markets. New market forays were initiated during the course of the year with trials being successfully concluded and awaiting upgrade to commercial arrangements. Planned maintenance carried out in the year availed more production time enabling the company improve its internal process efficiencies and overhead recoveries. The labour market posed new challenges post COVID as available technical skills were sought after by developed countries with more stable economies.

Performance

Commentary is on inflation adjusted accounts

Given the rapid dollarization of the economy in which costs were adjusted to a burgeoning exchange rate, while pricing opportunities were limited, profits recorded in the prior year were expected to tail off. The strategies deployed in the year enabled the company to post an operating profit albeit lower than prior year despite overall volumes increasing by 113 % at 1488 metric tonnes. The increased volumes were a result of a consistent throughput from the rubber factory sustained by technical partnerships which enabled raw materials to flow despite disruptions at source. In addition, the chemicals division’s relentless effort to open new market fronts was rewarded in the fourth quarter in which 46 % of the total volumes were delivered.
Volumes at General Beltings increased by 3 % to 310 metric tonnes from the 301 metric tonnes recorded in the prior year as the company maintained its traditional markets in the mining sector supported by a consistent order book and improved internal efficiencies. Cernol Chemicals traditional markets were subjected to fierce pricing competition from opportunistic new entrants who emerged from the COVID 19 pandemic. Buoyed by its product development and quality pedigree, Cernol Chemicals carved and consolidated in new niches and recorded a 196 % increase in volumes at 1178 metric tonnes.

Overall turnover at ZWL 575 million was a modest increase of 7 % from the prior year’s ZWL 537 million despite increased volumes in the Chemicals Division and steady business in the rubber division.

Gross profit fell by 12% to ZWL 246 million due to the strengthening of imported inflation in United States dollars following supply chain disruptions caused by Covid-19 pandemic and the Rand fell against the united states dollar during the year resulting in increased cost of raw materials. Despite the rapid dollarization of local costs which were based on ever increasing parallel rate, operating costs were contained at lower than the inflation levels and increased by 35 % to ZWL 203 million from the ZWL 150 million recorded in the prior year. A resultant 69 % reduction in operating profit of ZWL 44 million was recorded against a ZWL 140 million recorded in the prior year.

Strategy Review

The shortage of foreign currency is likely to persist in the absence of a significant injection into the economy and exchange rate induced inflation will continue to soar. Glitches in global Logistical movements have significantly affected operations in the sub region with the advent of COVID 19. Traditional shipping lines have been overwhelmed as the world economies suddenly opened up following the containment of Covid-19, leading to higher transport costs and longer shipping lead times thus affecting supplies and prices of raw materials from further afield.

The COVID-19 hiatus has enabled business to reopen with guarded caution of a future eruption of the disease in a possibly more virulent form. Given the benefit of hindsight, the vaccination strategy has been endorsed globally with more awareness and acceptance of offtake. Achieving the desired threshold of herd population is now a reality.

However following the containment of the pandemic, new occupational trends have emerged with workers in developed countries opting to work from home. As a result, certain occupations that require human interface have put an onerous demand on development countries pool of skilled workers who are better remunerated in stable economies.

The dynamic environment therefore demands that the company be alert to developments internationally and locally with the main focus of asset preservation, customer centric and continued profitability. The thrust to address customer specific challenges will remain core in the delivery of a commensurate value proposition buttressed by improved process efficiencies and retention of key skills. Appropriate compensation models will be tailor made to avert possible skills flight while capital expenditure will be on process efficiencies enhancement.

Future Prospects

The company’s key markets continue to offer opportunities as the sectors it serves have underlying potential. The resurgence of commodity prices in the mining sector are a source of optimism as evidenced by the planned expansion in the platinum, gold and energy sectors. Successful product trials concluded in the prior year and the subsequent placement of trial orders in new sectors point to a significant possible market breakthrough for General Beltings. Agriculture remains pivotal in the Zimbabwean economy. Cernol’s retention of its traditional markets and its attendant in- process chemicals is expected to drive demand of the company’s products as the economy opens up and customers opt to buy local. The above opportunities resonate well with the country’s vision 2030 Development strategy of making Zimbabwe a middle-income country.

Appreciation

The year was challenging and I would like to thank employees and management for their belief in the company, together with the counsel from the Dire