At The Market With Tetrad – Keeping it in the family


By Brian K Mugabe

THE emergence of the indigenisation drive on the Zimbabwe Stock Exchange (ZSE) over the past couple of years, fuelled by the negative real cost of borrowings in this hy

perinflationary environment, has seen prominent business people taking control of, or at least major stakes in various listed entities.


The behaviour of the stock and money markets has given them reasonable assurance that inflation would generate dividend streams far in excess of their cost of borrowings.


The cry from many has been that “the same names” keep cropping up in these deals, a charge that has led to claims of enrichment of the few and not the ideals of empowerment of the many.


Ultimately, of course, the power of one’s pocket and not sentiment does the talking and in an economy with as many structural anomalies as ours, the adage of “the rich getting richer while the poor get poorer” could not be any more accurate. But who said life was meant to be fair?


Today we shall look at the recently published interim results of four listed entities that make up part of such a ‘family’ of companies, these being General Beltings, Steelnet, Turnall and Zimre.


Beginning with General Beltings, turnover for the company was up 400% to $3,5 billion.


Exports grew at a slower pace than domestic sales as the stand-off with the Zambian Revenue Authority over the exchange rate used for Zimbabwean exports into that country saw volumes declining.


Despite this, at 54% they still contributed more to turnover than domestic sales.


Operating profit at $975 million was up 541% reflecting an improvement in margins from 22% to 28%.


Net financing income of $88 million was generated as the company recorded exchange gains of $187 million from the movement of the export support rate.


This more than offset the two percentage point increase in the tax rate to 34% and attributable earnings of $702 million were attained, a 602% growth rate on the $100 million from the first half of 2002.


Former General Beltings and Turnall stablemate at THZ, Steelnet, produced an interim result that in growth terms certainly proved to be the most impressive of the three.


Turnover went up 547% to $13,7 billion as all three divisions, Tube and Pipe, Hasst and BMA Fasteners performed well, the net result being an 8% increase in volumes driven primarily by exports.


Total exports for the period were 27% of total sales. Tube and Pipe remained the biggest division by contribution, generating turnover of $9,7 billion for the half. Operating profit was up eleven times to $7 billion, margins having improved materially from 29% to 51%, the company having benefited from its large stock holdings as inflation and the exchange rate both moved in its favour.


Net financing costs went from $91 million to $1,4 billion as borrowings increased significantly to maintain the stock holding strategy. Attributable earnings of $3,9 billion were achieved which at a growth rate of 869% was significantly above the official rate of inflation, and probably any unofficial rate one may have calculated at the time.


Turnall saw turnover growing by 316% to $7,9 billion with price controls on asbestos-cement products that were in effect for much of the period restricting sales growth. Exports at 22% of turnover remained largely static compared with the previous interims.


The aforementioned price controls led to operating margins declining by five percentage points to 29% and operating profits grew 255% to $2,3 billion, a rate below that of turnover.


Net financing income, which at $2,7 billion exceeded profit from operations, was boosted by a $1,8 billion exchange gain on the revaluation of foreign debtors at the half-year.


This had the effect of turning around the sub-inflationary operational performance at the bottom line level as attributable earnings of $3,4 billion were recorded, up 721% on interim 2002.


All three companies indicated that the second half of the year has so far seen enhanced performances. With foreign debtors all having been valued at the official rate of exchange, any movement in that rate is likely to provide further impetus to earnings growth for their year ends to December.


Zimre’s results proved disappointing to the market, in a half-year that saw the group’s reorganisation continue with the demerger and listing of Fidelity Life Assurance.


Spurred by the performances of the insurance and reinsurance subsidiaries, gross premium income was up 632% to $42,2 billion.


On the back of the ZSE bull run and revaluation of assets, investment income grew by 544% to $9,3 billion, an impressive performance given that liquidity requirements for the insurance industry meant that only 33% of the portfolio was invested in equities.


Other incomes went from $10 million to $730 million mainly thanks to the performance of the asset management and stock broking units.


Operating profit at $9 billion was up six-fold on 2002; with retrocession costs in particular showing a high rate of growth at 689%.


This was a function of the increase in asset values and the falling exchange rate with Zimre South Africa having seen retrocession costs increase by 1 829%. The benefits of the rights issue undertaken last year did however see an improvement in the retention ratio.