At The Market with Tetrad – Seed Co reaps without really sowing

Brian K Mugabe

SOUNDING more and more like a broken record, the Central Statistical Office (CSO) once again announced another record increase in the year-on-year inflation rate, this time for the month of Se

ptember, to 455,6%.


This was a 29% increase on the August figure of 426,6%.


The year-on-year increase was mainly attributed to increases in the average prices of beverages, meat, bread and cereals, fruits and vegetables and household operations.


Highlighting the incessant inflationary pressures that even the official figures have struggled to contain, the month-on-month increase of 24,8% was the highest ever recorded since the index was rebased to 1995.


The second highest increase was 21,1% recorded in June this year. Core, or non-food inflation, increased by 474,1% year-on-year and 25,9% month-on-month.


The recent introduction of more bank notes, bearer and travellers’ cheques into the economy, while alleviating the inconvenience for the masses, provides a further catalyst to fuel the hyperinflation in our country, as it comes against a commonly acknowledged background of falling gross domestic product.


It will be interesting to see what measures, if any, will be contained in the National Budget in a bid to avert further increases in the inflation rate, as clearly, nothing implemented during the current fiscal year had any impact, with Treasury’s estimate of 96% inflation by year-end proving hugely optimistic at best.


Hopefully, these measures will not revolve around the re-introduction of price controls as is being reported in the press, as surely past experience with this method of controlling inflation has shown that approach to be counter productive?


In the meantime, the stock market has been on the recovery path, rebounding from a low during its most recent decline of 584 200 points on October 7 to close Wednesday this week at 650 933.


This was an increase of 11% or 66 733 points.

With nothing really having changed in terms of the market fundamentals or lack thereof, the rise in the index once again highlighted the fact that, it is sentiment more than anything else that drives our market.


The best five performers during the period from October 7 to Wednesday were Dairibord up 95% to $195; OK 53% to $30,50; Fidelity 48% to $10,50; CFI 42% to $170 and Bindura up 40% to $1 400.


Of the nine counters to fall, the bottom five were Rio Tinto down 17% to $5 000; Steelnet 13% to $80; ABCH and Apex 12% each to $440 and $1 500, respectively, and Phoenix down 9% to $210.


Has the market overcome its pre-budget jitters or is it just awaiting a firm date for its presentation? The next couple of weeks should reveal all.


Turning to results this week, we take a look at the year-ends results of Truworths and the interim results of Sare and Seed Co.

Beginning with Truworths, all four divisions within the group had a successful year.


Group turnover at $11 billion was up 274% on 2002 with Topics remaining the biggest contributor to turnover at 51%, while Number 1 Stores recorded the highest growth in turnover of 339%.


Overall volumes for the group were up by 5%, and cash sales, inclusive of Number 1 stores were 36% of total turnover, up 4% from 32% in 2002.


Operating margins improved by 11 percentage points to 37%, spurred by the stockholding strategy and stringent cost controls which saw operating income of $4,1 billion being recorded, an increase of 434%.


The group continued to be in a positive net finance income position, with the inflows having grown from $18 million in 2002 to $161 million.


Attributable earnings of $2,9 billion were recorded, up 445% on the $537 million realised in the previous year.


Sare’s results for the six months to June 30 rank as probably the best to come out of the insurance sector during the interim reporting period.


Gross written premium was up 303% to $2,2 billion, driven mainly by inflationary asset value increases and regular reviews of sums insured.


Total outflows at $1 billion recorded a below premium income growth rate of 142%, as claim costs merely doubled to $518 million courtesy of prudent underwriting while there was a lack of major claims during the period.


Operating expenses grew by 272% to $622 million and the net effect was that the company, for the first time in recent years, recorded an underwriting profit of $273 million.


Investment income, at $623 million was up 648%, spurred by the strong performance of the stock market, and exchange gains on a foreign currency account, which contributed 37% and 59% respectively.


The latter gains will of course be subject to a similar or higher balance being held at the year-end and thus the sustainability of that earning stream is uncertain.


Attributable earnings of $822 million were achieved, a well above inflation 1 203% return.


Lastly, we look at the results of Seed Co, which like Sare’s were very much exchange gain driven.


With approximately 80% of its business coming through in the second half, turnover was up just 213% for the period to $6,4 billion, with local sales having increased by just 65%.


As a result export growth at 411% to $4,5 billion proved the major driver to sales.


Other operating income was up 19-fold to $6,5 billion, courtesy of net exchange gains of $5,9 billion and the disposal of property in Mozambique, which realized a profit of $495 million.


These windfalls resulted in operating income growing by over twenty three times to $5,2 billion.


An increase in borrowings saw net financing costs of $521 million being charged, but this did little to stem bottom line growth, which at 2 433% grew from $143 million to $3,6 billion.


Not bad for just 20% of one’s business I’d say!

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