BY FIDELITY MHLANGA
LISTED company National Tyre Services (NTS) posted a loss of $1,8 million for the six-month period ended September 30, 2019 attributed to severe forex shortages and extensive load-shedding.
This was a shift from a profit of $110 723 recorded same period the previous year.
Listed companies are now applying the Financial Reporting in Hyperinflationary Economies Standard (IAS 29) in accordance with the International Financial Reporting Standards after the Public Accountants and Auditors Board pronounced that Zimbabwe now met the requirements for hyperinflation reporting.
The pronouncement requires that companies that prepare and present financial statements for financial periods ended on or after July 1 2019 should apply the requirement of IAS 29 Financial Reporting in Hyperinflationary Economies.
As such, most companies delayed in publishing as they had to apply extra effort to their financials with the assistance of external auditors.
“The company had a challenging first half, mainly due to a shortage of foreign currency and extensive electricity load shedding. The scarcity of foreign currency resulted in reduced stock holding. Consequently, the company posted an inflation-adjusted loss of $1,8 million for the six months ended 30 September 2019,” NTS said in a statement accompanying results.
The company recorded an inflation-adjusted revenue decrease of 15% to $31,4 million from $38,8 million recorded prior period due to a decrease in sales volumes and reduced capacity utilisation.
Total assets decreased by 13% from $36,6 million to $31,7 million. The decrease in assets was mainly due to a decrease in current assets.
Shareholders’ equity decreased by 8% to $20,9 million due to the net loss incurred. The company remained solvent with total assets exceeding total liabilities by $20,9 million.
In inflation-adjusted terms, the business generated $4,7 million from operating activities. Of that $2,1 million was used for capital expenditure mainly for expansion. The major capital expenditure was for the setting-up of the new Msasa branch.
“The business environment is expected to remain difficult over the outlook period. However, the demand for the company’s products and services is expected to remain. In view of this, the company will continue to review its strategies to remain competitive and protect stakeholder interests,” said the company.
The company said the business environment continued to be characterised by major challenges, a key concern being the continued inflation and loss of value in the national currency which is leads to higher operating expenses.
The unfavourable business environment contributed to reduced aggregate demand and low business volumes.
“The company’s retail operations were affected by currency reforms in the period under review which resulted in persistent price increases that negatively affected demand,” said NTS.
Retreading operations performed well during the period under review due to shifting production to match power availability as well as improved availability of raw materials from reliable suppliers.
In June last year, government made a surprise announcement of the return of the Zimbabwe dollar, as the sole legal tender, and Treasury suspended the production of annualised inflation figures putting the accounting profession in a dilemma as to which index to use when preparing inflation-adjusted results.
The Institute of Chartered Accountants of Zimbabwe in its hyperinflation reporting guideline unveiled last November recommended companies to use the Zimbabwe National Statistics Agency (Zimstats) as the official source of all national statistics including inflation figures and the CPI index for the application of restatement of figures.
NTS’ external auditors, BDO Auditors, said due to the significance of the matters described in the bases of adverse
report it believed the financial statements did not present fairly in all material respects the financial position of NTS as at September 30, 2019.
BDO said the basis for the adverse report was in line with the fact that in 2018 the company operated in an environment where a combination of USD and local currency (bond notes and RTGS balances) were in use.
“Although the RTGS and bond notes were both legally recognised as a currency, in substance they were a currency. Legally the functional currency was USD and the legislated exchange rate between the local currency was 1.1.Market wide the rate of exchange between the USD and local currency was not 1.1.Comparative financial statements were prepared in USD and legislated in Statutory Instrument 33 of 2019 (Presidential Powers Temporary Measures) Amendment of RBZ Act and issue of realtime gross settlement electronic dollars (RTGS) regulations of 2019.The presentation in USD of the financial statements at a rate of 1.1 to the local currency resulted in material misstatement of comparative financial information,” BDO said.
An adverse opinion is a professional opinion made by an auditor indicating that a company’s financial statements are misrepresented, misstated and do not accurately reflect its financial performance and health.
Accordingly, BDO did not express an audit opinion on these financial statements.