Finance charges expunge Border, Radar’s profits

By Admire Mavolwane

AS the curtain came down last week, investors were torn between being joyful or descending into a sombre mood. In the first instance, the stalemate in the share market had been resolved a

nd trading on the Zimbabwe Stock Exchange had resumed on Thursday.


This piece of good news was delivered on the eve of a crucial International Monetary Fund (IMF) board meeting.


Trading on the bourse resumed after stakeholders had reached a compromise on the modus operandi of calculating both the withholding tax on capital gains as well as the prescribed assets’ ratios.


We hope the same spirit shown in this instance will be demonstrated in the wider economy as the nation tries to overcome the multitude of problems currently afflicting it. Sanity should always prevail in the end.


The reversion to book value in the enumeration of prescribed assets removed the ominous dark cloud that had been hanging over the market since the Minister of Finance delivered his mid-term fiscal policy review statement.


One would expect investors to eventually get acquainted with the idea of parting with 5% of their gross sale proceeds much in the same manner all and sundry came to embrace the National Social Security Authority (NSSA) subscriptions and the Aids levy.


The fact that one would have to visit the Zimra offices for capital gains rebates is, at this point in time, another bridge that will have to be crossed later.


The deferment of the implementation date to October 1 meant that when trading started, these issues would not initially feature in the here-and-now calculations of equity investors. Rather, catching up on the July inflation figures, taking positions ahead of the release of the August CPI figures, as well as recovering lost ground would be of paramount importance.


As a result of this buying appetite, during the five days to Wednesday the industrial index had experienced an unprecedented level of buoyancy, advancing by 14,18% and actually recording a historic high of 4 744 675,15 points on Tuesday.


The IMF board by a close vote of 42,42%:37,54%, gave the country a stay of execution for another six months. However, general consensus prior to the vote was that the country would not be expelled especially after the US$120 million payment which was accompanied by plenty of well-rehearsed pleading and lobbying.


In the final analysis, the closeness of the vote highlights the importance of the 18,04% abstentions. One can’t help but recall the controversial abstention by an Oceania Football Confederation representative Charles Dempsey during the July 2000 Fifa vote – this decision, or lack thereof, handed Germany the right to host the 2006 Football World Cup.


The fact that the guillotine has not been dropped and is still suspended above whilst our head remains on the block means we have lived to fight another battle in six months’ time. Maybe we will have the proverbial nine lives?


The stock market seems to have discounted the IMF vote with the index gaining a whopping 11,95% on the Friday of the vote, the highest one-day gain since January.


The heroes of the period were the big caps stocks Old Mutual, Innscor and Meikles which all gained a hefty 33% whilst Delta put on 20%.


The tame August inflation figure, which shows an unbelievably low month-on-month increase in prices of just 8,3% and is 10,3 percentage points above the July annual figure, proved to be the anti-climax. This has seen investors crystallising their five-day gains by taking profits.


The Herald, though, quotes the director-general as having said that the August inflation figures have not captured the adjustments in the exchange rates and the fuel prices as well as the concomitant price increases that normally follow increases in these variables.


The director is said to have further hinted that “September figures could give a totally different picture..”


In the meantime, corporate results have continued to flow into the market. This week, we focus on the full year to June 30 numbers from Border and Radar. Baboons, debt and forest fires have proved to be the recurring nemesis for Border.


Turnover grew by an impressive and above-inflation 276% to $165,3 billion as operating margins surged ahead to 32% on the back of price increases in both the export and domestic markets.


Consequently, operating profits increased by a commendable 427% to $52,2 billion.


However, almost three quarters of these earnings were used to fund finance charges of $38,4 billion. This meant that shareholders were able to lay claim to only $10,5 billion, 46% of what was attributable to them in the prior year.


The results of Radar mirrored those of subsidiary Border with impressive top line and operating margin performances all coming to nought after interest charges.


Having achieved sales growth of 243% to $254,4 billion and a 328% increase in operating profits to $65,1 billion, spurred on by a six percentage points increase in margins to 26%, $49 billion again went to the bankers. Shareholders were left holding a paltry $7,3 billion compared with $16,6 billion in 2004.


A notable feature of the Border results is the pessimism of the commentary and operational review. Rather than focus on the above-inflation growth rates in sales, the pleasing increase in operating margins and profits or the underlying causes of such a performance, the commentary instead focused on perennial themes – the problems of fires and baboons.


Whilst it is important to enlighten shareholders about the threats and challenges that the group is facing and has managed to surmount, we are of the opinion that shareholders do, from time to time, deserve a dose of positive and encouraging news especially when the numbers reflect a not-so-dire picture.

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