MINORITY shareholders on Wednesday brought the Border Timbers board under the spotlight after questioning the company’s valuation and fees paid out to directors and auditors. Shareholder activism is minimum in Zimbabwe and almost the voice of minorities is hardly heard as objections are immediately quashed or defeated by the controlling shareholders.
At the annual general meeting held on Tuesday, minority shareholder Mr Prakash Radhia questioned why the company had a low return on equity and sluggish stock market performance. Chairman Heinrich von Pezold said a large portion of the company’s balance sheet is under arbitration saying land related assets may not achieve fair valuation until there is clarity on tenure. Both the land and operating assets are protected through a Bippa between Zimbabwe and Germany.
Mr von Pezold cautioned shareholders the situation is unlikely to change in the foreseeable future although the company has been actively engaging authorities to address the issue.
Directors fees were approved at US$25 500 with Mr Radhia again raising objection on why the fees could not be paid in the form of shares instead in order to preserve cash. However, the group said it had no share option scheme and any such moves would require due process with regards to the necessary approvals.
Auditors fees were approved at US$83 031 although shareholders objected to the significant increase from last year’s amount of US$39 637.
However, it was noted that there had been some outstanding issues which were carried over to this year.
Giving a trading update, Border says the local market while having substantial demand is choking on the lack of liquidity and resultantly the group had a tough first quarter.
Mr von Pezold told the Annual General Meeting this morning that against budget, performance was up in July, August was “thereabout” while September and October were down.
“Because of this we had a tough first quarter as activity in Zimbabwe was low mainly as a result of power outages and costs.”
He added: “We are not satisfied with the current results as the business dynamics are not sustainable.” The group had re-organised and had reduced its labour while at the same the group had converted some of its products into sellable form.
Overall, Mr von Pezold said costs are 50 percent higher than they should be.
“So there will be drastic cost reduction, which is a painful exercise, but it will ensure the group becomes more profitable and cash flow positive.”
Mr von Pezold said because of the Zim liquidity constraints the group had diverted some of its products to regional markets.
He said the South African market while a strong volume market continues to discount Zimbabwean product on the basis of late delivery.
“This coupled with the devaluation of the rand has had a commensurate impact on the on the return to the bottom-line as the costs are US$ based.”
The group had also seen growth in Botswana, Mozambique and Zambia but overall the Zim market remained the most profitable. There was strong demand for the group with the tender business now in full swing particularly in poles.
Mr von Pezold said the group will pursue various initiatives which will protect margin and reduce costs. The initiatives are expected to bear fruit in the first quarter of the new calendar year. He said if there would be a reduction of borrowings, profitability would increase.
Borrowings in the year to June had increased US$3,2 million to US$16,97 million.
“Obviously the cash burn must be arrested and the group has been urgently addressing the different areas of negative cash flow.”