Valuation uncertainties cast shadow on Dairibord's...

Valuation uncertainties cast shadow on Dairibord's financial health

Directors – Dairibord Holdings Limited — **Dairiboard CEO Mercy Ndoro**

Nyashadzashe Ndoro

Zim Now Chief Reporter

In a development that may cast a shadow on the financial health of Dairibord Holdings Limited, a recent audit has raised concerns over the valuation of the company's investment properties and owner-occupied properties, worth a combined ZWL$119.77 billion, due to significant judgments and estimates involved in determining their fair value.

The audit, conducted by Deloitte & Touche for the financial year ended 31 December 2023, highlighted the significant judgements and estimates involved in determining the fair value of these properties, which are valued at ZWL$7.86 billion and ZWL$111.91 billion, respectively.

The audit report noted that the valuations are based on international valuation techniques, including the income approach and the direct comparison market approach.

However, the report also stated that the assumptions used in the valuations, such as market rental yields and exit capitalisation rates, are highly subjective and involve significant judgement.

"Given the minimal market data arising from a subdued and depressed property market, largely due to the current economic constraints in Zimbabwe, these ZWL valuations involve significant judgements and resultantly have high estimation uncertainty.

"These valuations also involve the use of valuation experts. The assumptions with the most significant impact on the property valuations were:

"The market rental yields, which are based on unobservable market data. The rental yields are estimated for each Individual property.

"The exit capitalisation rates, which one considered to be on all-risk yield rate and incorporate qualitative aspects, notably occupancy, tenancy mix, physical attributes and property locations risk adjustments

"All the above inputs are highly subjective and rely on judgement. The valuation of investment property is considered to be a key audit matter due to the greater degree of subjectivity and judgement included in the determination of the fair value and economic consequences and ongoing uncertainty in the property market," the audit noted.

The report also highlighted the risk of material misstatement due to fraud or error, and noted that the risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error.

In addition, the audit firm reported that they have nothing to report in respect of the Companies and Other Business Entities Act (Chapter 24:31) requirements, indicating that there are no material issues with the financial statements.

Despite operating in a challenging economic environment, the company has reported an 11% increase in sales volume, translating to 108 million litres sold, and a 47% surge in revenue to ZWL$724.12 billion.

According to Mercy Ndoro, Chief Executive Officer: "The Group's positive momentum is a result of strategic investments made to expand and improve production capabilities, ensuring improved product supply."

Ndoro attributed the growth to a commendable 8% increase in milk sales and an impressive 18% surge in beverages.

The generation of revenue in foreign currency remained a major area of focus, driven by the challenges posed by the foreign exchange market and difficulties in procuring sufficient foreign currency through the Reserve Bank of Zimbabwe's Foreign Exchange Auction System."

Foreign currency revenue accounted for 84% of the Group's total revenue, a significant increase from 56% in the prior year.

Ndoro noted, "The Group managed to sustain positive momentum in its overall volume performance, surpassing the prior year's achievements despite the complex economic and regulatory challenges.”