Dry season for shareholders

…As companies forgo dividend payouts

NDAMU SANDU


Shareholders of companies listed on the Zimbabwe Stock Exchange (ZSE)
face a dry season as firms forgo dividends payouts to build reserves required to navigate the volatile economic environment worsened by the
Covid-19 pandemic.


This comes as the economy is weighed down by a depreciating currency and runaway inflation which was at 765.57% in April from 676.39%.


Cost containment and cash flow management have been the buzzwords for executives as they steer their firms in the tough operating environment
which has been worsened by lockdowns necessitated to contain the spread of Covid-19.


In statements accompanying the financial results published recently, listed firms painted a gloomy outlook saying they were preserving the cash to
ride the stormy waters.


In a statement accompanying Old Mutual Zimbabwe financial statement
for the year ended December 31, board chairman Johannes Gawaxab said the financial services group was forgoing dividend payment “taking into
account the current economic environment exacerbated by post-year-end concerns over the Covid 19 pandemic and the potential economic impact
thereof as well as the need for the business to manage its capital prudently.”


There were no cheers for beverages maker Delta Corporation shareholders
after the firm said it would not pay dividend for the year ended December 31. It said the fortunes of the country and the firm was dependent
on how Zimbabwe manages and contains the Covid-19 pandemic and the ramp-up plan directed at reopening the economy.

Delta said the first quarter of the trading year would be significantly subdued owing to the effects of lockdown on business and the lag that will follow as the economy is gradually reopened and new or modified consumption patterns are established.


“The board will re-assess the implications of the Covid-19 lockdowns on the business after the first quarter of the current financial year,” Delta said. The
company declared an interim dividend of ZWL$0.0675 during the year.


Consumer discretionary concern Powerspeed Electrical Limited did not declare dividend for the half-year ended March 31, “given the immediate uncertainty, both in Zimbabwe and internationally”.


“However, we are optimistic that we should be in a position to, once again, declare a dividend at the end of this financial year,” the company
said.


Hospitality concern African Sun Limited said it would not declare further dividend from 2019 profits with the desire to preserve cash to cushion the group from the impact and uncertainties caused by Covid-19. In 2019,
the company declared two sets of interim dividends of ZWL$0.0061 per share and ZWL$0.01 per share.


Contracting and industrial group Masimba Holdings proposed a nil dividend for 2019 after considering the “profitability of the group,
its future cash flows and the potential economic impact of Covid-19 on the group’s operations. Resultantly, inclusive of the interim dividend paid, the total dividend for the year ending 31 December 2019 will be ZWL0.83 cents (2018: ZWL0.35 cents).


Truworths’ board deemed it prudent not to declare a dividend due to the need to finance increased working capital requirements in a hyperinflationary environment with limited/reduced supplier credit terms.

In the outlook, the company said the pressure on discretionary spending and foreign exchange will persist in the short to medium term.


For banks, they are building their capital base to be compliant with the US$30m equivalent minimum capital threshold set by Reserve Bank
of Zimbabwe for top tier banks by December 31.

While First Capital Bank made a historical profit during the financial year it would not pay a dividend considering the increased capital requirement.
FBC Holdings said the board resolved to make the interim dividend declared on December 12, 2019, final dividend due to the “need to meet the capitalisation requirements of group subsidiary business units.”

Its flagship unit FBC Bank should have a minimum equity capital of equivalent to US$30m by December 31 to attain the top tier status. The group had declared an interim dividend on August 28, 2019.


NMB Holdings said it would not declare a dividend as it was “focusing on achieving the recently announced minimum regulatory capital requirement of the ZWL equivalent of US$30m for a Tier 1 bank
by December 31 2020 for its banking subsidiary”.


There will be no respite for Edgars’ shareholders as the firm want them to inject more funds into the business. The clothing retailer wants shareholders to inject ZWL$70m into the business as it moves to
intensify productivity of existing footprint and deepen product portfolio offered by the group’s credit and financial services. Shareholders meet on
June 16 at an EGM to approve the capital raise.


Investment analyst at Fincent Securities Ranga Makwata said most companies on the ZSE chose not to pay out dividends this year from
their 2019 earnings because it was important for them to conserve cash in anticipation of difficulties brought up by the Covid-19 pandemic.


“Before the pandemic, the common thing was for companies to pay out more including special dividends because the Zimbabwe dollar was fast losing value and could not be reinvested meaningfully in the operations, many of which required US dollar capital injections,” Makwata said.


He said hyperinflation was worsening but the business stoppages caused by lockdown measures and the muchreduced product demand resulting from social distancing measures adopted to contain coronavirus transmission made it imperative for businesses to preserve cash since the outlook on generating it in the near future is bleak.

The pandemic, Makwata said, has worsened the capital position of most local businesses and many require working capital support.


“It is necessary for companies to raise fresh capital and indeed we might see increased rights issue activities in the market. However, the rights issues will only be raised in local currency which means companies may still need to find ways of raising foreign currency they may require to
import raw material,” he said.


Head of Research at Morgan & Co Batanai Matsika said a number of firms will not declare dividend due to cash constraints caused by Covid-19.
He said companies can reward shareholders through share buybacks which will see the share price increasing.

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