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Full year results OK for OK

By Admire Mavolwane

AN eerie air of despondency appears to have engulfed the country at the moment to such an extent that one can literally feel it.

tica, sans-serif”>At almost every social gathering — or even at analysts’ briefings one is bound to hear soft murmurs: “Those days are back again.”

One can only infer that the days being referred to belong, probably, to the 2002/3 era. Some, with a sigh of resignation, only say: “The more things change, the more they stay the same.”

Media headlines add to the misery by announcing price increases of non-available products, shortages of basic commodities, transport problems, the re-emergence of fuel queues and a whole host of bad news almost everyday.

The only positives we have had in the past couple of weeks are the commissioning of the Zimbabwe United Passenger Company (Zupco) buses and Air Force and Air Zimbabwe planes, all sourced from China.

The shortages of basic commodities have put to rest the notion of one-stop shopping. These days, shoppers move from one outlet to another picking up as many items as they find in each shop.

The most common negative cost of inflation, namely shoe-leather costs, is back to haunt the populace, as too much money chases too few goods.

It is now the norm to carry large amounts of cash as one never knows where one might find the goods that are in short supply. Shoppers now instinctively join any queue they stumble upon in the shops as either sugar or cooking oil could be available.

A pall of uncertainty has also been cast on the markets whether shares, money, foreign currency or property by the non-delivery of the all-important post-election monetary policy statement.

The stock market, being in the limelight has borne the brunt of nervous participants. Starting last Wednesday, investors became unsettled and trading on the bourse became mixed with a weaker bias.

The dominance of the bears only waned on Tuesday but by then investors’ wealth had been devalued by 5,68% and the index was below the three million level again. The trend reversed, however, on Tuesday as punters became bolder and started venturing back into shares.

The conclusion that can be drawn from all this is that as past experience has shown, the local stock market suffers from a host of ills brought about by the skewed economic fundamentals and is very susceptible to transitory shocks applied by the authorities.

Investors are, at the moment, engaged in a mental zero sum game trying to secondguess the governor and deciding which position to take. Some are betting against any significant changes in policy which would crash the stock market while others are of the exaggerated view that come the aftermath of the policy announcement, there will be no more stock market left to talk about.

Notes are being exchanged daily with most of them based on sheer speculation. Whatever consensus is reached determines sentiment towards shares and the direction of the market — at least for that period.

In the meantime, corporate results for companies with the March reporting period have started flowing into the market.

Ariston was first to lay down the gauntlet last week, with a rather tepid set of numbers for the six months to March 31.

Turnover for the horticulture and floriculture group grew by 97% to $86,3 billion, while operating profits rose by a meagre 23% to $10,5 billion. The disappointing growth rates at both top line and operating profit level, coupled with an eight percentage point compression in margins from 20 to 12%, bore testimony to the impact of the static exchange rate on revenues on one hand, and the rapidly rising costs of doing business on the other.

Net financing costs of $6,5 billion further diluted the group’s earnings, leaving only $3,6 billion as profits attributable to shareholders, almost two thirds of the $5,6 billion realised in the corresponding interim period of 2004.

The future of the group depends on the authorities’ stance on the exchange rate. Exports account for over 60% of revenue thus rendering Ariston at the mercy, so to speak, of the vagaries of the exchange rate.

In the spirit of the ongoing OK Grand Challenge Jabulani Promotion, OK Zimbabwe released a solid and fantastic set of full-year to March 31 results. Net sales grew by 308% to $1,2 trillion, comfortably outpacing both the average official year-on-year inflation rate or the period of 262,7% and the internally measured average rate of 256,1%.

Not to be outdone, operating expenses grew at a slightly greater pace of 323%, but the figure is distorted by the inclusion of a $5 billion provision for the funds locked up in CFX which is currently under curatorship.

Consequently, operating profits grew by a disappointing 89% to $65 billion as margins shrunk from 12 to 6%.

The decline in margins was attributed to the above-mentioned provision, the relatively stable pricing regime that prevailed in 2004, the availability of low margin basic commodities which comprised 86% of total sales, increased promotional activity and high shrinkage levels.

For the year, unexplained losses, which are classified as shrinkage, amounted to $12,1 billion. At least 75% of this amount was lost in the first six months. After having their fingers rapped by shareholders and the market, management instituted measures that successfully curbed disappearances of stocks. A reduced $3,1 billion was lost in the second six months.

The group is literally a money printing machine, generating close to $97,9 billion from operations and closing the period with a cash pile of $126,1 billion. As such, interest earned from investing this cash amounted to $39,9 billion, significantly higher than what many of the smaller banks earned in interest income.

Having received such a boost, attributable earnings of $85,2 billion were realised, up 180% on 2004. Although the bottom line growth rate is below the average inflation for the period, it is way ahead of the official CPI figure for March of 123,7% and also ahead of OK’s own measured annual inflation rate of 155%.

The board declared a Jabulani Grand Challenge — a generous final dividend of $8,59 to bring the total dividend to $12,16 which equates to a 50% payout.

The upcoming year presents a lot of challenges, as the shortage of basic commodities, among other things, are likely to dampen performance. Basic commodities, while attracting lower margins, are important to retailers as they bring in the traffic into the shops. Everything may not be quite OK for both the retail group and the country as a whole this year!

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