Sweetness proves ZSR’s only weakness

At the market with Tetrad group

WHILE the stock market may have pre-budget blues, this has not stopped companies producing results that have exceeded market expectations, in some cases by a long l

ong way as Pelhams, PGI and ZSR have done. A pity that negative market sentiment has tended not to reward their performances.


Pelhams produced a surprisingly pleasant set of interim results for the six months to September 30.


Net turnover was up 454% to $11,5 billion, driven by a 4% increase in volumes for major lines thanks to a stronger than expected second quarter, and of course, inflationary pricing.


Given the nature of the products sold by the company which tend to be big ticket items, however, the price increases lagged the rate of inflation in a bid to keep the goods reasonably affordable.


With other operating income of $5,7 billion, made up of $2,3 billion in finance charges and $3,4 billion in exchange gains relating to hard currency awaiting the importation of stocks coming into play, total operating income of $12 billion was recorded for the period.


This represented a seven-fold growth rate on the 2002 figure.

Overheads increased by 333% to $3,3 billion, which was below the rate of inflation and reflected management efforts to reign in cost pressures.

Thanks mainly to the growth in other income, operating margins went up a massive 31 percentage points to 76%, and operating profit of $8,7 billion was achieved, an 837% rise on the comparative period.


With the decision having been taken to build up stocks, which the company saw as one of the few effective hedges against inflation it could invest in given the fixed term nature of its hire purchase contracts, borrowings recorded a significant increase.


The rationale was that interest rates were negative in real terms and thus would be used to fund assets that provided real returns. Against this backdrop an interest charge of $980 million was incurred compared with interest income of $9 million in the prior year.


Attributable earnings of $5,3 billion were attained, an impressive 714% jump on the $657 million returned at the interim stage in 2002.


Even more impressive were the interim results for PGI, again to September.

Group turnover was up 905% to $66,3 billion compared with the previous half year to September 2002. This performance was driven mainly by exports, which grew at a rate of 1 594%, more than double the 716% growth in domestic sales.


Overall volumes also recorded an increase during the period, which also helped drive sales, as did the consolidation of Zimtile for the three months during which it was a part of the stable.


Operating income came out at $25,2 billion, sixteen times the $1,6 billion from the first half of last year, and margins improved from 24% to 38%.


The growth in margins was attributed in particular to the increase in exports, which are higher margin than domestic sales. This scenario was especially true for Zimboard, where the shortage of board in the region had the effect of pushing up prices.


The discontinuance of lower margin filler product lines also played a roll in margin improvement.


Net interest paid at $3,4 billion was significantly higher than 2002 where a charge of $116 million was recorded.


This reflected increased borrowings to assist in funding the acquisition of Zimtile, as well as working capital, with $19 billion in working capital outflows during the period.


This diluted earnings somewhat, but with the group recording bottom line growth of 1 260% to $15,7 billion, investors still had every reason to be smiling!


Lastly we look at the results of ZSR, who take the gold star in terms of earnings growth performance for the results being looked at this week.


Turnover for the group was up 555% to $95 billion, which more than anything else reflected the impact of the controlled price of sugar for much of the period under review.


This was highlighted by the fact that the domestic sugar business showed an increase in sales of just 72%.


Other group businesses and the associated sugar business in Botswana were thus the catalysts for the growth in sales, having seen increases of 732% and 1 898% respectively.


At the operating level price controls on domestic sugar against ever rising costs, as well as the shortage of critical inputs such as coal which had to be imported, led to an operating loss of $1,9 billion being recorded by the sugar division.


Again the other businesses and the associate came to the rescue, with operating profits of $16,9 billion and $536 million respectively, joined this time by investment income of $3,4 billion arising from the disposal of a short term investment.


Net operating profits came out at $18,9 billion, a staggering 1 951% increase reflecting margin growth of 14 percentage points to 20%.


As with the above two companies, borrowings were up by quite a large degree and interest charges shot up accordingly, from $39 million to $776 million.


Nevertheless, attributable earnings of $11,3 billion were achieved which showed a growth rate of 1 905%.


Who needs sugar indeed!

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