By Admire Mavolwane
YESTERDAY saw the curtain coming down on the first half of the fiscal year for government and the financial year for most corporates. It will now be time to take stock an
d, hopefully, the Minister of Finance will in his half year review provide some clues to enable companies, at least with a certain measure of confidence, to chart their way forward.
Wads of cash will be spent financing strategic seminars, quite likely in Eastern Highlands resorts for purposes of reviewing performance for the past six months as well as to try to set budgets for the second half. It is also the time when most consultants come into the money as they are hired by executives to help figure out a way out of the current labyrinth.
Even then, like the executives whose work they will be doing, most of the experts will not have much of a clue either but will still present thick reports and continue to bank their fat cheques. As usual, most shareholders remain optimistic and will be hoping that besides providing some hotels with much needed revenues, these indabas will, at the end of the day, come up with strategies to enhance, or at the very least preserve, shareholders’ wealth in these trying times.
A number of events that took place in the first six months left many flabbergasted and graphically illustrated the fluidity of the business environment. The movement in the auction rate, while expected, has still managed to leave many both smiling and tongue-tied. Those with a negative foreign currency exposure, such as owing foreign creditors, anxiously look out for the auction results and wonder when the slide will finally stop.
While the more than 60% depreciation in the value of the Zimbabwe dollar or, in other words, the increase in the auction rate, means an increase in top line and massive exchange gains for exporters, it also means a concomitant decline in the fortunes of a company with a foreign exposure as it recognises an exchange rate loss on the foreign liabilities which will now have to be settled using the higher exchange rate. So the closing auction for June will be used to evaluate both exchange losses and gains.
The swiftness and surprise factor in the implementation of Operation Restore Order and the fact that it was unanticipated reinforced the nature and unpredictability of those steering the ship. Some companies saw a huge chuck of their markets being buried under the rubble, while others saw reduced demand for their products.
The housing co-operatives had become a huge client base for a number of building materials manufacturers and suppliers. It is, however, amazing that with the demise and scaling down of street wheeling and dealing congestion levels on the three mobile networks has not let up. One could be forgiven for thinking that maybe some of the base stations were illegal structures as congestion levels seem to have worsened since the exercise began.
The other issue that has seen many scratching their heads, scouting the Internet and making long range calls to experts in South Africa and beyond is the International Monetary Fund (IMF) Article IV Consultation visit which was concluded on June 25. The statement issued on Monday was full of the usual diplomacy and fell short of spelling out the institution’s real intentions on Zimbabwe which is for the IMF board to decide.
What has caused much head shaking is the likely repercussion on industry and commerce of the country’s possible expulsion or, in the organisation’s own parlance, “compulsory withdrawal of membership”. Although we are not enjoying any of the privileges that come with being a member, due to our indebtedness, at least we are still a member of the family.
As the black sheep of many families will readily testify, it is far more difficult to return to the fold after being officially disowned. It is also worth remembering that the country would have been bestowed with yet another dubious distinction on the global stage — that of being the first member to have been
summarily ejected from that particular institution — if that were to occur.
We digress a little to look at the full year to March 31 numbers from Cottco and PGI. Starting with Cottco — the growth in turnover of 317% to $1,2 trillion flattered to deceive as the subsequent line items were not encouraging at all. No doubt the consolidation of Seed Co’s figures did play a part in ensuring that a relative respectable performance was achieved with red ink being avoided.
Operating margins tumbled from 53% to 20% reflecting the change in the operating landscape. The prior year included the heady period of 2003, when costs were lagging behind inflation and the exchange rate was not as static as it was after the introduction of the controlled auction system. The decline in international prices on one hand and the increase in the local producer prices from $400/kg to $1 800 on the other hand further eroded margins. Consequently operating profits grew by a measly 58% to $237 billion.
A $206,2 billion interest outlay meant that shareholders were left with very little. In fact, the investment in Seed Co came in handy with the subsidiary contributing $73,1 billion to profits before tax. This contribution meant that whilst the parent company had incurred a full year loss before tax of $42,3 billion, the reported figures show a respectable profit before tax of $30,8 billion.
An operating loss attributable to shareholders of $3,9 billion was realized compared with $102 billion profit in the prior year. What a difference 12 months can make to the fortunes of a company!
Looking forward, the introduction of 5% money for exporters and 20% concessionary funds for farmers, coupled with a movement in the exchange rate should hopefully see some profitability returning to the white gold group.
Another former highflyer, PG Industries, released its full year results which as expected showed a loss of $39,4 billion. In the prior year, which again included nine calendar months of 2003, the group had realised a profit of $9,5 billion. The reduced profit level in 2004 was as a result of the group having been caught with its pants down in the interest rate hike of December 2003. From what looked like a manageable $22 billion in March 2004, the debt had ballooned to $44 billion six months later before peaking at $66 billion at the end of 2004.
The group is still awaiting a number of regulatory approvals, which will see PGI relinquish 51% of both the Zimboard Products division and glass operations, in exchange for cash which would be used to retire a huge chunk of the crippling debt. Otherwise, trading operations have been going on very well.
However the future could have been blighted by the destruction of the once vibrant informal sector which constituted a significant portion of the group’s client base although the CEO looks at it differently and sees cash in chaos.
Going back to the IMF statement, we close this week with a verbatim quote which rather than excite will actually depress many: “…the mission stressed that the magnitude of the economic problems confronting Zimbabwe calls for a comprehensive policy package that should include decisive action to lower the fiscal deficit, a tightening of monetary policy, and steps to establish a
unified, market-determined exchange rate.
“The package should also include structural reforms, such as the removal of administrative controls, to ease shortages and restore private sector confidence…”. Read into that what you like.