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Celsys singing the blues

By Admire Mavolwane

WEDNESDAY this week marked the first full week of little or no trade at all on the stock market as the stalemate between stakeholders in the investment industry conti


One party, keen to grab a good slice of the perceived stock market cake at all costs, is digging in its heels yet is not prepared to get their hands dirty by venturing into the administrative jungle that will be involved in cutting up the cake.

The other party is, understandably, dodging the responsibility, adamant that the proposed arrangement is not workable and is thus refusing to be appointed as a collecting agent. Notwithstanding the ongoing negotiations, Party A has gone ahead and published a notice advising the public that Party B is now officially its agent.

It has also been exciting times in the money market with the Reserve Bank increasing the accommodation rate by 90 percentage points from 190% to 270% per annum – via a brief stop at the 200% level, for secured lending, whilst unsecured lending will attract the usual 10 percentage points premium.

This was in response to the jump, by an almost similar margin, in the annual inflation rate figure for July to 254,8%. The benchmark 91-day Treasury Bill (TB) yield immediately followed suit leaping to 265% per annum. Frequent adjustments in the bank rate in line with the inflation rate are expected.

As a consequence, most players have adopted the rational stance of not participating in 91-day TB tenders, thus lessening the hassle of trying to restructure the book again in three weeks’ time when the CSO next releases its figures.

As a result, support for 91-day TB tenders has been minimal. In a clear response to these developments, given the government’s pressing need for money, the Reserve Bank this Wednesday offered 30-day bills and accepted bids around 225% per annum.

The standoff on the stock market and the rate hike have coincided with the climax of the June reporting season, thus stealing all the thunder and excitement that might otherwise have been generated by corporate results. Even when trade resumes, it will be very difficult for the market to unleash its forces to reward and punish, particularly given the fact that there may be many forced individual sellers out there. Obviously, confidence in the stock market has been severely shaken and it will, in all likelihood, take some time to return.

Moving now to the results, we start with Cafca which released its half-year to June 30 numbers showing a remarkable return to profitability on the back of an increase in both domestic and export volumes.

Volumes grew by 285% for the latter whilst sales revenues were up 727% to $23 billion. Improvements in the local markets saw domestic turnover growing by 147% to $31,2 billion as unit sales recorded a 22% surge. Total turnover increased by three-and-a-half times to $54,3 billion.

The major highlight was the fact that the group moved from an operating loss position of $2,6 billion to a profit of $10 billion. Of major concern, however, is the continued high level of gearing with short-term debt at half-year standing at $9,9 billion, compared with shareholders’ funds of $10,3 billion – giving a net gearing ratio of 90%.

These borrowings led to the company paying $3 billion to its lenders. Attributable earnings of $6,2 billion were realised compared with a loss of $2,7 billion in the first six months of 2004.

The future is looking good with the company having a full order book. Being an exporter, any further devaluation of the exchange rate will be of great benefit but on the debit side is the issue of the debt, especially now that interest rates are heading northwards rapidly.

Afdis released a solid set of full-year numbers riding on the back of an 8% increase in partaking of the waters of wisdom. No doubt aggressive pricing on the part of its competitor and major shareholder, the brewer of clear and sorghum ales, and the parliamentary elections had a beneficial impact on the volumes of spirits and wine sales. Gross turnover grew by 222% to $239,2 billion.

Operating margins receded by three percentage points to 39%, which saw the corresponding profits growing by a diluted 208% to $95,3 billion. An inflow of $9,2 billion in the form of finance income was achieved compared with an outflow of $2,3 billion in the prior period. The early part of 2004 saw many companies paying large sums in interest charges after being caught in the interest rate hike that started in December 2003 at a time when borrowing was the fad – Afdis was no different.

After providing for the amounts due to the state in the form of tax, attributable earnings of $72,8 billion were realised, reflecting an annual return of 279% on 2004.

Lastly, we look at the full-year financials of Celsys, yesteryear’s high-flyer now singing the blues.

Turnover for the 12 months to June 30 at $84 billion was 65% of that achieved in the 11 months to June 30, 2004 – this really puts into perspective the dry patch that the group has gone through.

In an environment characterised by high interest rates and shortages, the flagship division of the group, C-phone had to constrain credit sales, thus impacting negatively on turnover.

Operating Restore Order, which displaced most of the company’s payphone dealers, added salt to an already festering wound.

Operating margins succumbed to the twin forces of reduced turnover and increasing costs, tumbling from 43% to 14%. In the same vein, operating profits of $11,8 billion were recorded compared with $55,2 billion in the prior year.

A $26,4 billion writedown of the debtors’ book and an interest charge of $10,5 billion eroded all profits resulting in an attributable loss of $19,7 billion.

In 2004, the telecommunications group had recorded a profit of $52,3 billion, which then represented an earnings growth of 584%, making the group a darling of the stock market.

Taking cognisance of the need for new and fresh ideas, a new management team is now in place. The board in its statement assured shareholders that strategies are being implemented to reduce the debt and place the company on much stronger footing. Hopefully, this will help the group weather the tough times ahead.

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