At The Market with Tetrad – Astra spin-offs paint a pretty picture


By Brain Mugabe

THE government’s privatisation programme, despite success in its divestiture of companies such as Dairibord, Cottco, Caps and Zimre, has over the past two years stopped a

nd stuttered along.


A forecast $40,9 billion in privatisation proceeds in the 2002 budget statement proved grossly optimistic with only $10,2 million being anticipated by the time this year’s statement was made. The forecast for this year was that the fiscus would raise $20 billion, a figure which again is unlikely to be attainable.


The Minister of Finance and Economic Development Herbert Murerwa’s reported view is that “if successfully carried out, privatisation raises both domestic and foreign currency for the budget, as well as create opportunities for increased participation by the indigenous populace, reducing monopolies and contributing to growth”.


Despite these perceived advantages however, the authorities have continued to drag their feet on the matter, for example in the high profile case of the rejection of bids in the proposed disposal of government’s shares in the three former Astra group companies – Astra Industries, Cairns Holdings and Tractive Power Holdings.


Government’s 66,53% share in each of these three listed entities, as at their Wednesday closing prices of $360, $231 and $130 respectively, amounted to $64 billion out of a combined market capitalisation of $96,3 billion.


The disposal of interests in these three companies alone would thus raise more than three times the forecasted privatisation inflows for the current year. Food for thought perhaps.


The above three companies recently published their year end results to August 31, all of which saw earnings growth in line with, or in excess of the official rate of inflation.


Looking at them alphabetically and coincidentally chronologically in terms of date of publication, we start with the results of Astra.


Turnover was up 318% to $31 billion, driven mainly by inflationary price increases as volumes declined by 17%.


Astra Paints and Astra Chemicals contributed 41% each to sales, while the balance came from Astra Steel and Industrial Supplies.


Operating profit, thanks to the improvement in margins from 31% to 42%, grew by 459% to $13,2 billion.


While margins did witness an improvement, they remained below the levels management would have liked as price controls between November 2002 and May this year impacted negatively on the company.


Cost containment also came to the fore rising by a well below inflation 247% during the course of the year.


Interest income stood at $100 million compared with $13 million in the prior year.


This helped boost bottom line growth to 466%, representing attributable earnings of $8,8 billion.


Top line growth at Cairns was far more impressive, up 455% to $31 billion.

This growth was despite what was described as a significant slowdown in demand within the foods division especially in the second half.


The fire at the paprika operation which led to it operating for just six months of the year restricted sales growth, but this was to some extent offset by the full consolidation of subsidiary ME Charhon for the eight months since it became a subsidiary.


Operating profit growth was again margin-driven with margins surging from 22% to 37%. Operating profits at $11,4 billion were nine and half times up on the $1,2 billion recorded in 2002.


Income from associates at $235 million was below the $312 million from the prior year as a result of the conversion of ME Charhon from an associate to a subsidiary.


Finance costs were up 774% to $297 million as borrowings went from $486 million at the end of 2002 to $3,3 billion.


These borrowings were largely used to help finance working capital cash outflows of $11,9 billion.


Attributable earnings of $7,6 billion were attained, an increase of 621% on the previous year and the highest earnings growth rate among the three companies.


Lastly we look at Tractive.


The company recorded the lowest turnover growth rate of 196% to $21,2 billion for the year.


An overall decline in new unit volume sales, as companies deferred capex due to the current uncertain economic environment, was the main reason behind the low increase in turnover.


Other factors were the increase in direct customer purchases and the brokerage of second-hand farm machinery sales, commissions on which are accounted for in operating profit and not in turnover.


As with the prior year, after sales service and parts sales was thus the mainstay of the sales performance.


The latter factor, along with tighter cost controls and stock holding gains with the company on average holding five months stock at any given time, had the effect of enhancing operating profits which grew by 461% to $8 billion.


Margins almost doubled from 20% to 38%. A $314 million revaluation on investment property added to revenues as did $43 million worth of finance income.


The strong operational performance led to attributable earnings of $4,7 billion being achieved, an increase of 505% on the 2002 year end figure.

Very good results then from all three companies. Perhaps it is these sterling performances that have resulted in government proving reluctant to divest.

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