Zeco’s going concern status hangs in balance

LISTED engineering firm, Zeco Holdings Limited’s going concern status hangs in the balance as the company’s current liabilities have exceeded current assets by $4,484 million.

According to a recently issued statement of financial position for the year ended December 31, 2019, the company’s total current liabilities stood at $6,347 582 against total current assets amounting to $1,863 408.

The Zimbabwe Stock Exchange listed company specialises in steel fabrication and installation as well as the manufacturing of plastic components and distribution of electric motors.

During the period under review, the group generated inflation adjusted revenues of $4,435 million compared to $5,055 million in the prior year.

The group’s asset base stood at $325,449 million. An independent auditor’s report accompanying Zeco Holdings’ financial results for the year under review, noted the firm’s going concern status was in doubt given that total current liabilities exceeded total current assets by $4,484 million.

“These conditions may indicate the existence of a material uncertainty that may cast significant doubt about the company’s ability to continue as a going concern.

“The financial statements do not include any adjustments that might result from the outcome of this uncertainty,” said the auditor’s report.

The report also indicated that the company incurred a net deficit of $67,9 million in the year under review compared to $1,6 million in 2018, which resulted in negative retained earnings of $60,3 million as at December 31, 2019, (2018: negative $19 million).

“As stated…, these events or conditions, along with other matters as set forth in note 20, indicate that a material uncertainty exists that may cast significant doubt on the company’s ability to continue as a going concern.

“Our opinion is not modified in respect of this matter. We evaluated the company’s going concern assessment by challenging the underlying data used to prepare the key assumptions applied within the company’s cash flows; overall profitability and cash flows, and its effect on the timing of the company’s cash flows,” said the auditor’s report.

Furthermore, it stated that audit procedures were performed to identify events subsequent to year end in order to identify revenues that have been received and evidence further of cost-cutting measures.

“We considered the conclusion reached by the company to prepare the financial statement on the basis of a going concern, and the resultant disclosures, to be appropriate.”

During the year under review, Zeco Holdings also incurred increasing statutory obligation owed to the Zimbabwe Revenue Authority, National Social Security Authority and the Zimbabwe Manpower Development Fund.

The company’s outstanding statutory obligation amounted to close to $600 million and the independent auditor’s report recommended the need by Zeco to review payment plans with the statutory bodies in order to offset the balance.

Zeco Holdings chairman Dr Philip Chiyangwa attributed his organisation’s poor performance to the challenging operating environment.

In the outlook, he said the economic environment would remain dampened by inflation and currency volatility in the short to medium term with the effects of Covid-19 worsening the situation.

“Despite these current economic challenges, the group will continue to pursue potential synergies and expansion projects, which will enable sustainable growth and preserving value for all stakeholders,” he said.

Zeco subsidiaries include the Bulawayo-based flagship, Delward Engineering. In March this year, Delward Engineering announced that it was in talks with an Indonesian investor, Inka Limited, over a strategic deal that will see the country’s sole rail wagons manufacturer resuming production before the end of the year.-ebusiness