• MGI Chartered Accountants cited simultaneous non-compliance with IAS 29, IFRS 9, and IAS 40, meaning presented results are non-compliant with the standards governing how those numbers should be measured
• ZECO holds ZWG 348,985 in cash less than 15 days of administrative expenditure against total assets of ZWG 154.25 million that are 49.6% discontinued operations, 97.5% of the remainder in illiquid property and equipment
• The profit of ZWG 3.37 million that represents ZECO's turnaround from the prior year's loss is entirely dependent on rental income of ZWG 9.53 million from properties whose valuation has not been confirmed in compliance with IAS 40

Harare- ZECO Holdings Limited's FY2025 financial statements has presented a company in transition,  from loss to profit, from contraction to modest revenue growth, from strategic uncertainty to a new direction.

The chairman's statement describes improved revenues, a notable turnaround from the prior year's loss, and positive momentum expected in 2026. Each of those statements is technically supported by the numbers on the page.

However, what the chairman's statement does not say, and what the auditor's report says three times in three separate paragraphs is that the financial statements from which those conclusions are drawn do not comply with the international accounting standards they are supposed to follow, not in one area, but in three, simultaneously.

A qualified audit opinion is a formal statement that the financial statements contain material departures from accounting standards in identified areas while remaining otherwise fairly presented. One qualification is a red flag, two qualifications in a single audit report is unusual and warrants serious analytical attention. Three qualifications in a single audit report on a listed company's financial statements is a level of audit concern that demands more than a passing reading of the chairman's statement.

MGI Chartered Accountants has qualified ZECO Holdings' FY2025 financial statements on three distinct grounds.

The first qualification is non-compliance with IAS 29, Financial Reporting in Hyperinflationary Economies. Zimbabwe was operating in a hyperinflationary economy for the year ended 31 December 2025. IAS 29 requires that financial statements prepared in the currency of a hyperinflationary economy be restated to reflect current purchasing power, adjusting historical cost figures using a general price index to produce numbers that are comparable across periods and meaningful in real terms.

ZECO Holdings has not done this, the basis of preparation note acknowledges the non-compliance explicitly, the financial statements have been prepared in accordance with IFRS except for non-compliance with IAS 29. The consequence of IAS 29 non-compliance is that every figure in the income statement, every balance sheet number, and every comparative figure is stated in nominal ZWG that has not been adjusted for inflation.

In a country where annual inflation closed at 15% in ZWG terms and 12.4% in USD terms in 2025, the gap between nominal and inflation-adjusted figures is material. The revenue growth from ZWG 1.65 million in 2024 to ZWG 5.06 million in 2025, a 206% increase in nominal terms  has not been adjusted for the price level changes that occurred between those two periods.

Whether real revenue grew, held flat, or declined cannot be determined from these financial statements because the standard that would make that determination possible has not been applied.

The second qualification is non-compliance with IFRS 9, Financial Instruments. IFRS 9 requires entities to recognise expected credit losses on financial assets carried at amortised cost,  including trade receivables. The standard does not wait for a debtor to actually default before requiring a provision. It requires a forward-looking estimate of losses that are expected, based on historical experience, current conditions, and reasonable forecasts.

ZECO Holdings has not recognised any expected credit losses on its trade receivables. The company carries trade receivables of ZWG 282,742 on the balance sheet, unchanged from the ZWG 282,742 recorded in 2024. A trade receivable that has not moved, not increased, not decreased, not been collected, in a full financial year is itself an analytical signal.

A receivable that has sat at exactly the same balance for two consecutive years without any expected credit loss provision, in a hyperinflationary operating environment, is a receivable that the auditors have formally flagged as not being measured in accordance with the applicable standard. The effect of this non-compliance on the financial statements has not been quantified.

The third qualification is the most structurally significant. MGI has found that ZECO Holdings' investment property, carried at ZWG 1,277,959 on the balance sheet, has remained at the same value as the prior year without adjustment. IAS 40, Investment Property, requires that investment property be measured either at fair value with changes recognised in profit or loss, or at cost with disclosure of fair value.

ZECO Holdings has chosen the cost model but has not adjusted the carrying amount of the investment property to reflect changes in value. The auditors note that this departure results in the investment property being misstated, and that the effects of this matter on the financial statements have not been determined. An asset whose fair value is unknown, whose carrying value is unchanged from the prior year, and whose misstatement has not been quantified is an asset that cannot be relied upon at the balance sheet value at which it appears.

Three qualifications, together, in a single audit report on a ZSE-listed company, they describe a set of financial statements whose revenue figures are not inflation-adjusted, whose receivables are not provisioned for expected losses, and whose investment property is carried at a value the auditors have formally flagged as potentially misstated.

The turnaround from loss to profit that the chairman's statement announces is real in nominal terms. Whether it is real in any analytically meaningful sense, in purchasing power terms, net of credit risk, with properly valued assets, cannot be confirmed from these financial statements as presented.

Meanwhile, ZECO Holdings' total assets of ZWG 154.25 million are the largest number in these financial statements and the one most likely to generate a superficially reassuring read. Total assets of ZWG 154 million against total liabilities of ZWG 4.66 million produces total equity of ZWG 149.58 million, a balance sheet that appears strongly capitalised. The composition of those assets is where the analytical work begins.

ZWG 76.48 million,  49.6% of total assets, sits in assets classified as discontinued operations. These are the assets of Zimplastics (Private) Limited and Delward T/A ZECO (Private) Limited, subsidiaries whose operations were discontinued because they had become unsustainable with no prospects of recovery due to cheap import competition. Assets classified as held for sale in discontinued operations are supposed to be measured at the lower of carrying amount and fair value less costs to sell, and are expected to be sold within twelve months of classification.

The financial statements do not indicate when these assets were classified as discontinued, what the expected realisation timeline is, or whether the fair value less costs to sell assessment has been performed in compliance with IFRS 5. What is disclosed is that ZWG 76.48 million of the company's asset base is in businesses that have been formally abandoned as unviable.

Of the remaining ZWG 77.77 million in continuing operations assets, ZWG 75.83 million, 97.5%, is property, plant and equipment. Within that, ZWG 56.53 million is buildings and ZWG 5.12 million is land, together representing ZWG 61.65 million or 81.3% of the continuing operations fixed asset base.

The revaluation reserve of ZWG 129.84 million in equity, the largest single component of the ZWG 149.58 million equity base, reflects the 2024 revaluation of these properties, which increased their carrying value from approximately ZWG 1.5 million at cost to ZWG 72.15 million through a ZWG 134.97 million revaluation surplus recognised in 2024.

A balance sheet whose equity is dominated by a property revaluation performed in 2024, whose investment property has not been revalued since, and whose auditors have qualified the accounts for IAS 40 non-compliance, is a balance sheet whose stated net asset value of ZWG 149.58 million rests on a valuation methodology the auditors have formally flagged as non-compliant.

Cash at year end was ZWG 348,985. The entire liquid asset base, the cash available to pay suppliers, staff, auditors, and operating costs, is less than ZWG 350,000. Against administration costs of ZWG 8.31 million for the year, the year-end cash balance represents approximately 15 days of administrative expenditure. Against employee costs alone of ZWG 2.87 million for the year, the cash balance covers approximately 44 days of payroll.

A company with ZWG 154 million in total assets and ZWG 349,000 in cash is a company whose asset base is almost entirely illiquid, held in property, discontinued operations, and fixed equipment, while its operational funding requirement is being met month to month from revenue that totalled ZWG 5.06 million for the entire year.

The Revenue Picture

Revenue for FY2025 was ZWG 5.06 million, up from ZWG 1.66 million in 2024, a 206% increase in nominal terms that, as established, has not been adjusted for inflation. Cost of sales was ZWG 3.01 million, producing gross profit of ZWG 2.05 million and a gross margin of 40.5%. Operating profit was ZWG 11.67 million. The gap between gross profit of ZWG 2.05 million and operating profit of ZWG 11.67 million is filled entirely by other income of ZWG 9.63 million, of which ZWG 9.53 million is rent received and ZWG 99,486 is sundry income.

ZECO Holdings is, in operational terms, a property rental business with a small steel fabrication and window frame manufacturing operation attached to it. Rental income of ZWG 9.53 million against sales revenue of ZWG 5.06 million means that 65.3% of the company's total income for the year came from renting out space in its buildings, the same buildings whose valuation underpins the revaluation reserve that dominates the balance sheet, and the same investment property that the auditors have flagged as potentially misstated under IAS 40.

The core manufacturing business generated ZWG 5.06 million in revenue and ZWG 2.05 million in gross profit. Administration costs of ZWG 8.31 million, including employee costs of ZWG 2.87 million and administration expenses of ZWG 5.30 million, exceeded the gross profit by ZWG 6.26 million.

Without the rental income, ZECO Holdings' continuing operations would have recorded a loss of approximately ZWG 6.26 million in FY2025. The profit attributable to equity holders of ZWG 3.37 million that represents the turnaround from the prior year's loss is entirely dependent on rental income from properties whose valuation has not been confirmed in compliance with IAS 40.

Going forward, the group is in transition pursuing a new strategic focus, with management initiating projects aimed at unlocking value and driving sustainable profitability. The notes to the financial statements provide more context. ZECO Holdings specialises in steel fabrication and installation and the manufacture of window and door frames, and is moving towards a new strategic thrust. The discontinued operations, Zimplastics and Delward T/A ZECO, were shut down because of competition from cheap imports mainly from the East. The businesses had become unsustainable with no prospects of recovery.

A ZSE-listed holding company whose manufacturing subsidiaries have been abandoned as unviable due to import competition, whose current revenue base is dominated by property rental, whose cash position is ZWG 348,985, whose auditors have issued a three-count qualified opinion, and whose directors have disclosed a going concern uncertainty, is a company at a genuinely critical strategic juncture.

The new strategic direction, which includes construction work at Dingani Investments, applying for tenders, and exploring new revenue streams, may produce a viable business in 2026. The financial statements as presented do not provide the reliable baseline from which that trajectory can be assessed, because the accounting standards that would make the numbers comparable, properly provisioned, and correctly valued have not been applied.

The profit of ZWG 3.37 million is real in nominal terms. The equity of ZWG 149.58 million is real on the balance sheet. The going concern uncertainty is also real, and it sits in direct tension with both of those numbers.

A company can be nominally profitable, balance-sheet-solvent on paper, and simultaneously unable to satisfy its own directors that it can continue as a going concern, when its cash is ZWG 349,000, its revenue is rental income from revalued properties, and its auditors have qualified three separate accounting standards in a single opinion. ZECO Holdings is precisely that company at 31 December 2025. The market deserves to read these results with that fact at the front, not the back.

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