By Admire Mavolwane
THE recent rains should come as a welcome relief to the nation. The prospect of a poor harvest brings with it a lot of challenges to both the authorities and ordinary Zimbabweans.
For the first time in eight years, a positive growth in real GDP of between 3,5 and 5% is being forecast this year.
In the light of the dry spell, serious reservations were being expressed on the likelihood of growth of this magnitude being achieved, seeing as it was predicated upon a 28% real growth in agriculture, essentially based on an increased volume in output of tobacco, sugar, maize, wheat and cotton, backed by increased activity in mining and tourism.
A wide range of factors including late planting, unfavourable weather conditions, disease, insufficient inputs, reduced reaping and curing capacity limitations have seen the official target for tobacco output being scaled down from 160 million kg to 100 million kg.
Cotton output has also been revised down from 400 000 tonnes to between 250 000 and 310 000 tonnes for much the same reasons, whilst the envisaged maize output has obviously been affected by the dry spells.
The onset of the current rains has coincided with the release of a refreshingly solid set of results from Zimpapers (albeit from a relatively smaller base). For the 12 months to December 31 2004, group turnover grew by 594% to $185,6 billion.
The growth was driven by increased circulation and advertising volumes, no doubt supported by parastatals and other quasi-government organisations through supplements, as well as “proper costing” of products.
The flagship newspaper division contributed approximately 90% of the revenues, whilst the commercial printing division was hampered by shortages of imported paper and foreign currency shortages, needed for the importation of critical spares.
An eleven percentage point improvement in operating margins to 20% saw operating profits increasing by 1 422% to $37,2 billion.
The newspapers division returned a superlative performance, with operating margins doubling from 13 to 26%, as profits increased sixteen-fold to $43 billion. The commercial printing contributed negatively with an operating loss of $6,8 billion for reasons that were alluded to earlier on.
Exchange losses of $3,5 billion stand out like a pimple on the otherwise unblemished group income statement. The losses arose from the reinstatement, in the balance sheet, of a foreign liability.
Cash-flows were very strong, with inflows from operations of $30 billion. As at the balance sheet date, cash resources stood at $7,4 billion after accounting for $5,5 billion locked up at CFX Bank, currently under the management and care of a curator.
Attributable earnings of $23,4 billion were realised, up a massive 12 266% on the $189 million achieved in the prior year. To cap it all, a dividend of $5 per share was declared. The share price responded positively, gaining $30 on the day to $200 on a volume of 16 million shares.
Milk processor Dairibord also unveiled a good set of full-year to December
results, driven by a 16% increase in volumes of value-added products.
However, a 17% decline in total milk intake coupled with a 12% decrease in export sales mitigated against the good performance of the former.
In fact, raw milk supplies had to be augmented by imports of powder from South Africa, thus reflecting the adverse impact the depletion in the national dairy herd is having on the group; at 36 000 head, the country’s dairy herd is a far cry from the peak of 200 000 reached before the fast-track land reform programme. Notwithstanding this shrinkage, sales revenues grew by 347% to $453,2 billion.
Operating profits at $91,9 billion, were 394% up on the 2003 figure of $18,6 billion as margins were more or less maintained, gaining two percentage points to 20%. The group remains a cash cow, generating $76,5 billion from operations and closing the year with $61,2 billion in the bank. This is after having close to $1 billion frozen in three banks that were placed under curatorship and having spent $12 billion on capital expenditure and paid out $11 billion in dividends. On the back of all this, the group still managed to increase its finance income from $1,2 billion to $5,5 billion.
The group’s share of M E Charhons profits doubled to $8,8 billion. Contribution to profits before tax from the associate decreased from 17 to 9% as its performance lagged that of the group’s subsidiaries.
After accounting for a $5,7 billion interest expense, a $31,5 billion tax provision and profits attributable to outside shareholders of $888 million, the bottom line came out at $68,1 billion. This translates to a year-on-year return of 287%. As has become the norm, a generous final dividend of $70 per share was declared.
Lastly we look at the Kingdom capital raising exercise currently underway. As mentioned two weeks ago, the indigenous financial group is seeking to raise approximately $100 billion dollars through the issue of 1,4 billion shares at a subscription price of $70. For every share already held, the shareholder is being offered another four. Thus every shareholder who does not follow his rights stands to be diluted by 80%!
The issue is fully underwritten by Meikles Africa Ltd and shareholders holding between them 52,25% of the total issued share capital have confirmed their intention to follow their rights. The proceeds of the issue would be used to strengthen the overall capital base of the group as well as expanding existing high return areas such as leasing, lending activities, treasury, and Meikles Financial Services.
The offer was in a way necessitated by the negative impact of depositors’ flight from the indigenous bloc of the banking community to the international banks following a series of failures of locally-owned banks. Although Kingdom Bank managed to weather these developments, it was left weakened by the loss of confidence and in need of recapitalisation.
As a matter of fact, Kingdom Bank Ltd, the commercial banking unit, incurred interest losses during the period between October and December as a result of the run on deposits in December, the negative liquidity impact of the monetary policy changes as well as the review of the parameters used in the calculation of statutory reserves effected in October 2004 together with the effect of the two-year paper issued to the bank at a yield of 70% against a cost of funds of over 200%.