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Turnall Holdings sacks top executives

By Paul Nyakazeya
Turnall Holdings Limited’s managing director, Caleb Musodza and finance director, Kenias Horonga have been relieved of their duties in what the organisation said was “part of the business’ general cost rationalisation efforts”.


The Turnall board has appointed Roseline Chisveto as acting managing director while Prince Mutatagura will be acting finance director.

Musodza and Horonga are leaving at a time the company is facing corporate governance issues involving alleged asset stripping and mismanagement of funds.

Turnall has been probing a series of transactions amid suspicions of corruption and fraudulent activities implicating top executives; these could have bled the firm of about US$350 000.

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The Financial Gazette understands that internal auditors have unearthed  suspicious transactions which are being subjected to investigations, verifications and evidential tests.

“The board wishes to notify shareholders that the managing director Caleb Musodza and finance director Kenias Horonga will leave the organisation with effect from 1 October 2016 and will proceed on leave until 31 December,” said Turnall chairperson Rita Likukuma in a statement yesterday.

Musodza was appointed managing director in September 2014,  taking over from John Jere, who had served the company for more than 14 years in various capacities. Before he was appointed managing director, Musodza was the company’s marketing director.

Horonga joined Turnall after he left Colcom Holdings Limited, were he was finance director, in December 2012. He left the company when a forensic audit by Proctor and Associates Fraud and Risk Advisory Group revealed that he was taking advantage of inside information to engage in unfair business practices for personal gain.

Colcom had issued a cautionary statement at the time, suggesting that the problem could involve significant sums of money.

According to the audit, the insider trading deals were exposed after Colcom invited quotations for the delivery of coal from Hwange to the company’s office in Harare.

The audit noted that Horonga, who was also a procurement executive, was one of the directors of Kendo Trucking, a company that had been contracted to ferry coal from Hwange to Colcom in Harare, taking advantage of inside information.

As the market awaits the finding of the audit, Turnall’s latest financial results showed that the company was far from fully recovering. Turnall incurred a US$1,8 million loss for the half year to June 30, 2016 on the back of inadequate funding for operations as well as foreign payment challenges which resulted in low production levels. This was against a profit of US$399 754 during the same period the previous year.

With negative working capital amounting to US$13 million, the company is failing to fund its operations. Efforts to get funding through other financial channels have also failed to bear fruit because the company has a weak balance sheet.

Since 2013, analysts and market watchers have been very vocal about issues surrounding Turnall. They highlighted a lot of operational inefficiencies in the group and a poor cash conversion cycle.

In 2014, there were management changes and a restructuring of the entire company meant to plug certain structural weaknesses inherent in the group.

What was very worrying at one of the company’s analysts briefings was disclosure by the new team regarding the number of system failures and corporate governance issues at the company.

The fact that the business had to restate its financials then due to accounting system failures was of major concern. And the fact that the company’s external auditors failed to pick this up was also worrying.

In the financial year to December 2014, costs ballooned and volumes and revenues contracted. Cost of goods sold were 96 percent of total sales against 80,7 percent in the comparable period last year.

This had a major negative effect on margins, which nosedived to four percent from 19,3 percent in 2013. This came as a result of major operational flaws in the group that came as a result of not taking advantage of the scale of the business.

Capacity utilisation was significantly low due to a number of reasons which included working capital constraints and leverage.

This resulted in the business straining its already dire cash flow situation in an attempt to turnaround the corner.

The company’s financial results for the half year to June 2016 also revealed insufficient working capital, coupled with difficulties in obtaining foreign exchange.

Gross profit margins declined to nine percent in the first half of the year from 22 percent during the comparative period the previous year. Capacity utilisation at 20 percent also contributed to the decline in gross profit.

The result has been an increase in production costs per unit thus significantly eroding margins from 22 percent to nine percent. Insufficient working capital could easily lead to limited production as was the case in the first five months of the year.

In trying to solve some of these challenges, management adopted a lean business model.

Unfortunately, this meant Turnall was giving away market share. Once the market was accustomed to a different product it was difficult for Turnall to regain that market share.

The focus in the medium term needs to be shifted towards growing the export market so that there is meaningful contribution to group revenue, noted one analyst.

“This is the company’s future and we strongly advocate for the company to refocus its business model towards the export markets. Tanzania, Angola, the Democratic Republic of Congo, and other countries within the region have been investing heavily in capital projects and present some opportunities for growth,” said the analyst.

Turnall’s biggest challenge remains under-capitalisation which is aggravated by its inability to access debt capital for working capital purposes.

Management disclosed that legacy variables hindered efforts to access working capital resulting in raw material outages, shortages of spare parts and delays in executing retooling projects.

According to analysts, what the new managing director and finance director should be now aiming for is a new capital raise to strengthen working capital and pay off debts.

While the company has faced a lot of internal challenges, the stronger US dollar has made the situation worse, hampering exports into regional markets.

This is where management should look at some hedging options to mitigate against currency risk. Financial Gazette