We have extracted the Chairman’s Statement from the 2019 half year financial report for General Beltings Holdings (GBH.zw), listed on the Zimbabwe Stock Exchange:
I hereby present to you the unaudited half year results for the six months period ended 30 June 2019. The continued effort by the authorities to stabilise the macroeconomic environment culminated among others into the change of the functional currency from US dollars to RTGS Dollars on 22 February 2019. The enactment of statutory instrument 142 of 2019 removed the use of the multicurrency system for legal tender purposes and simultaneously replaced it with the use of the Zimbabwe Dollar in June 2019. According to Zimstats year on year inflation stood at 175.5 % at 30 June 2019 (2018: 2.91 %) as a result of the unintended consequences of the policy interventions.
The business was challenged in terms of access to foreign currency, power outages and inflationary pressure on costs which negatively affected downstream demand. Liquidity constraints persisted as the RBZ overnight lending rates increased from an average of 15 % to 50 % in an effort to curb speculative borrowing thereby exacerbating an already depressed demand in the market.
Total volumes decreased by 30 % to 327 metric tonnes when compared with same period prior year due to inactivity in the first quarter at the rubber division as the business remodelled in response to key policy changes. The decline in volumes at the Chemicals division of 16 % at 241 metric tonnes was attributable to deflated downstream demand in the economy.
Despite a reduction in volumes, total turnover increased by 100 % when compared with prior year same period due to a favourable product mix and the price movement dynamics prevailing in the macro economy. Both divisions recorded growths in turnover in their niche markets where opportunities existed. Due to improved turnover and a cost lag, overall gross profit increased by 264 %. Operating costs increased by 59 % notwithstanding the inflationary pressure on costs. As a result an operating profit of ZWL 1.5 million was recorded against a prior year loss of ZWL 86 000. The average cost of borrowing at 14 % per annum resulted in an interest expense of ZWL94 992.
The economy is expected to shrink by 2.1 % in 2019 owing to the effects of drought on key sectors particularly agriculture and power generation. The mining sector which is a key market for the company is expected to register a 1.1 % growth on the back of strengthening commodity prices.
Despite policy fluidity and a rising inflation rate, the company is expected to withstand the headwinds to preserve value while taking advantage of any opportunities that may arise in the key markets it serves.
At their meeting on 24 September 2019, the Board considered the need to preserve working capital and resolved not to declare a dividend.
I remain indebted to the employees, all stakeholders and management for their patience and belief in the company despite an ever changing operating environment. I thank my fellow Directors for their wise counsel and look forward to their continued support.
G. G. NHEMACHENA