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At the Market with Tetrad

Ariston produces another sweet bouquet for shareholders

Brian Mugabe

THE month of May saw the industrial index continuing to trek upwards, buoyed by good results comi

ng out of listed companies in the “mini” reporting season and the surge in the rate of inflation.

These factors resulted in the index breaking the 200 000 point to reach a high of 211 987 before retreating somewhat to close the month at 203 959. The closing position represented a gain of 8,4% for May, and a year to date increase of 97% which represents an annualised return of 233%.

While this lagged the official rate of inflation for April of 269,2%, it still represents a significant premium on money market rates which only in some instances have just breached the 100% levels, thus suggesting that the stock market still represents a better value for investors. Accepting of course that the market continues to ignore the unrelenting strain on the economy, as evidenced by the fuel, forex and power shortages as well as massive unemployment among other indicators, it has displayed a resilience that has surprised the prophets of doom over the past three years in particular.

Turning to the mini reporting season, this week we take a look at the results of Ariston, Masholdings, Willdale and ZSR.

Beginning with Ariston, the company’s interim results to March 31 2003 were nothing short of exceptional. Turnover was up 476% to $9,4 billion as international prices for flowers, tea, fruit and macadamia nuts proved strong during the period, while the new exporters’ exchange rate no doubt also aided sales growth. Poor climatic conditions and labour availability in respect of tea production as well as sporadic interruptions to fuel, coal, electricity, and spare parts supplies hampered further growth in sales.

With the export revenues in Zimbabwe dollar terms increasing at a much higher rate than costs, the group’s operating margins doubled from 15% to 31% and operating profits surged more than 12 times to $2,9 billion. The net interest charge at $6 million was down from 2002’s $19 million reflecting, the robust cash generation from the group which realised operating cash flows of $2,9 billion and lower seasonal borrowings.

Equity accounted earnings at $51 million were 282% up on the previous year. This was mostly made up of the group’s investment in Katope following the disposal of its stake in Tetrad during the period.

Attributable earnings of $2,4 billion were attained, up a massive 925% on 2002. The tradition of a stronger second half performance should continue, though the extent of its superiority will be curtailed by the greater contribution from the flower divisions whose revenues mostly accrue in the first half of the financial year.

Next we look at the results to March 31 2003 of former industrial conglomerate Masholdings. The company over time has successfully divested itself from its non-property assets through the de-merger of Powerspeed in 2001, Willdale in November 2002 and the disposal and closure of other divisions. The group’s property division, Mash Properties, is now the only remaining Masholdings’ business.

The current results for the company are not comparable to the corresponding period in 2002, as the previous results included the discontinued operations, that is Willdale, prior to its demerger and other divisions which were disposed off in December 2001. Focusing specifically on “continuing” operations, turnover, (basically rental income), increased by 127% to $15 million. An operating loss before non-recurring items of $20 million was recorded compared to a $3 million loss in 2002. Net interest receivable of $23 million, net non-recurring items of $8 million relating to the recovery of bad debts and restructuring costs, together with a nil tax charge provision resulted in attributable profits of $10 million being achieved.

Going forward, the company intends to transform itself into a property investment and development company using its listing on the ZSE, though the long term prospects of this strategy hinge on the acquisition of suitable properties. Concrete details relating to this transformation are yet to reach the market, but statements will be made to shareholders as and when the board deems it appropriate.

Former Masholdings subsidiary, Willdale, produced a solid if uninspiring turnaround performance for the six months to March 2003.

Turnover was up 306% to $1 billion, driven mainly by demand from the residential housing sector as the construction industry remained largely subdued due to the country’s economic downturn. The first half of the year is also usually slow as it falls in line with the rainy season, a factor exaggerated by excessive cyclone induced rains at the beginning of the year.

With cost of sales and operating expenditure growth being curtailed to a relatively lower 197% and 159%, respectively, the company made an operating profit of $219 million. This compared with a loss of $35 million in the interim period to March 2002.

The successful refinancing of the company done by way of a rights issue in November 2002 as well as the improved profitability led to Willdale being in a net interest income position of $14 million against outflows of $96 million in 2002.

Carried forward losses meant no provisional taxation charge for the half year although a deferred tax debit of $29 million was put through, and attributable earnings of $204 million were achieved. Interim 2002 saw a loss of $131 million being reported.

The company, with its debilitating debt burden reversed as well as the removal of price controls is likely to see an improved second half, though this is likely to be well below its potential unless the county’s fuel and power deficiencies are somehow addressed.

Lastly we look at the year end results to March 2003 of ZSR, which judging by the impressive performance despite losses by the sugar division should perhaps seek a name change!

Group turnover was up 191% to $48,5 billion, a below inflation increase reflecting the negative effects of price controls on the domestic sugar business which saw sales up just 44%, as well as a decline in domestic volume sales of 16% courtesy of unstable supplies of coal and raw sugar.

The “other” group businesses with sales growth of 292% proved the mainstay.

Operating profits of $6,1 billion, up 716% on 2002, were again driven by the “other” businesses, in particular Red Star Wholesalers whose performance was boosted by the acquisition of a Bhadella Wholesalers outlet in September last year. In spite of the $826 million operating loss coming from the sugar division, operating margins were up a remarkable three times to 12,5%.

Higher borrowings led to a four-fold increase in net interest paid to $88 million, but this was more than offset by a reduction in the tax rate from 38% to 31% which had the effect of boosting attributable earnings which grew by 832% to $4,1 billion.

The expansion of the “other” business has continued with the acquisition of Advance Wholsalers in May 2003 being an example.

Expansion both locally and regionally will continue to be the thrust for the group and along with the recent removal of price controls on sugar should see ZSR continue to post similarly notable results.

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