Zeco auditors sound alarm bells over debt

AUDITORS of engineering firm Zeco Holdings Limited are sceptical about the company's capacity to continue operating due to its illiquid short-term debt ratio of just ZW$0,19 for every dollar.

This illiquid position, as identified in Zeco’s financial results for the year ended December 31, 2023, comes despite management putting preservative measures in place to secure the company’s liquidity.

Local businessman Phillip Chiyangwa is the major shareholder at Zeco.

Auditors MGI Chartered Accountants (MGI) noted that the firm’s balance sheet created material uncertainties over future operating results and cash flows.

Zeco remained in the red after posting a loss of ZW$848,93 million (US$139 062,06) for the year ended December 31, 2023.

However, this was a narrower position from the 2022 comparative of ZW$1,09 billion (US$1,6 million).

But, again, MGI raised a flag against these results given the fact that management continued to adopt the going concern basis of accounting in preparing the annual financial statements, thereby materially misstating the results.

“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,” MGI said in a statement attached to Zeco’s financial results for the year ended December 31, 2023.

“We performed audit procedures to identify events subsequent to year end in order to identify revenues that have been received and evidence further of cost cutting measures.

“We have considered the adequacy of going concern disclosures. We draw your attention to note 22 where further details on going concern have been disclosed.”

They continued: “As stated in note 22, 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.”

The firm’s current liabilities as of the end of the period under review were five times more than that of Zeco’s current assets.

MGI said the directors had not satisfied themselves with the group’s ability to continue operating as a going concern.

The auditors added that the going concern reporting basis had been maintained with the view of anticipated improved operational prospects for the entity.

The group has, however, been putting in place initiatives to support the continued preparation of the group’s financial statements on a going concern basis.

These initiatives include additional revenue, which is now being generated from Crittal Hope renting out space.

There is also major construction work underway at Dingani Investments that upon completion, management hopes to explore a new revenue stream.

The group is also hiring workers according to the number of ongoing projects so as to minimise staff costs while also actively applying for new tenders to increase revenue generation.

“Whilst management have put in place measures to preserve cash and secure additional finance, these circumstances create material uncertainties over future operating results and cash flows,” MGI said.

“Management have concluded that the combination of these circumstances creates material uncertainties over future operating results and cash flows.

“Management have concluded that the combination of these circumstances represents a material uncertainty that casts significant doubt upon the group's ability to continue as a going concern and that, therefore, the group may be unable to realise its assets and discharge its liabilities in the normal course of business.”

MGI said, however, after considering the uncertainties described above, management had a reasonable expectation that the group had adequate resources to continue in operational existence for the foreseeable future.

“For these reasons, they continue to adopt the going concern basis of accounting in preparing the annual financial statements,” MGI said.

Besides the going concern issue, the firm also struggled with compliance to international accounting standards.