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At The Market with Tetrad

Spotlight on former THZ companies

By Admire Mavolwane

MARCH 31 must have been a long day for the banking fraternity as we awaited the central bank governor Gideon Gono’s statement on the e

xpiration of loans disbursed at inception of the Troubled Banks Fund.

The last minute cancellation of a meeting between the doctor and the banks scheduled for late that afternoon added anxiety to already frayed nerves. No doubt most people tuned to their televisions for the ZBC main news bulletin in anticipation of the outcome of the meeting. Of major interest was the fate of Trust Bank, the biggest beneficiary of the fund.

Perhaps in keeping with the spirit of the upcoming Easter Holidays, the governor extended a reprieve to the banks. In a statement dated April 2, the regulatory authority detailed progress made in implementing corrective measures by the beneficiaries and pledged to continue supporting the ailing institutions as they navigate their way out of murky waters. Sighs of relief reverberated throughout the capital on Monday this week.

Other sectors which perhaps require the equivalent of a Troubled Banks Fund would be manufacturing and retailing. Many will agree that the $1,2 trillion concessionary funding extended to the manufacturers has gone a long way in alleviating the interest burden carried by the manufacturers. The real problem that remains which is akin to the failure of banks to mobilise deposits is the slowdown in domestic demand compounded by increasingly unviable exports.

Some of the concessionary funding is due for repayment in July. If the current trading conditions prevail, then many beneficiaries may not be able to make good on the loans. The deteriorating trading environment alluded to has prompted Tedco Ltd to call off its proposed de-merger of Tedco Industries Ltd, the manufacturing arm of the business. The envisaged benefits for shareholders will not be realisable in present circumstances. The publication of a cautionary announcement was followed by their results for 15 months to December 31.

Annualised turnover for the group increased by 674% to $31,7 billion with the manufacturing unit contributing 58%, the retail division and Julie Whyte contributed the balance. Exports coming out of Tedco Industries Ltd’s two EPZ factories amounted to 26% of turnover.

The surge in interest rates experienced towards the close of last year resulted in interest charges of $2,5 billion which restricted the growth in pretax profits to only 570% to $9,3 billion. Corresponding margins were down three percentage points to 25%. Attributable earnings of $7 billon were realised, up 597% on 2002. Tedco Industries Ltd contributed 85% to group earnings while the retail and Julie Whyte contributed 10% and 5% respectively. In contrast, at September 30, the split in earnings was 67% from the manufacturing unit and 33% from the other two divisions. The trading conditions in November and December deteriorated so significantly that in three months, the group only made $2,91 per share.

The outlook remains gloomy. For the first quarter of this year, the group has been operating below 50% of internal forecasts. As with many exporters, the auction rate has rendered exports unprofitable while domestic demand is not picking up. As is evident from the split in earnings, the retail division would not in the current environment justify a separate listing.

We now take a look at the year-end results from the ex-THZ companies – General Beltings, Steelnet and Turnall whose unbundling and separate listing in 2002 could not have been done at a more appropriate time.

General Beltings recorded a below inflation turnover growth rate of 402% to $12,4 billion. Volume sales were 20% lower than in 2002, hampered by the loss of the Zambian export market due to punitive non-tariff barriers imposed by the Zambian authorities early last year. Consequently, export sales contribution to turnover declined from 56% in the previous year to 38%. The focus on the predominantly higher margin local conveyor belting sales to the mining sector saw operating margins increase by 13 percentage points to 35%.

Boosted by the good margin performance, operating profits increased by a remarkable 691% to $4,1 billion. After accounting for taxation and net financing costs which increased from $22 million to $768 million, attributable earnings of $2,3 billion were achieved, up 607% on 2002. Turnover for the other sibling Steelnet grew by 637% to $58 billion. Exports into the region improved significantly, recording volume increases of 36%. Contribution to turnover moved up from 13% to 28%. Operating profits at $28 billion were 801% higher courtesy of the strong export margins which resulted in group margins increasing from 42% to 52%. Interest charges of $9,1 billion, 26 times more than 2002 charges, severely watered down bottom line growth, which increased by 569% to $13,8 billion.

Turnall recorded turnover growth of 443% to $36,1 billion inhibited by poor export performance. Contribution to revenue decreased from 20% to 9% with the decline attributed to production constraints in the first half due to cement shortages and distribution problems in the main market, South Africa.

The below inflation revenue growth rate, allied with the negative impact of price controls in the first half saw margins coming off from 42% to 38%. Operating profits increased by a mere 397% to $13,7 billion.

In contrast to Steelnet, the group had net income of $8,4 billion, $7,1 billion of which came in the form of exchange gains and $1,3 billion worth of interest receipts. These inflows significantly amplified bottom line growth, 678% to $15,1 billion.

First quarter performance for this year from the three is not encouraging. The outlook has a now common theme. Most of corporate result commentaries, save for the different wording, seem to suggest no visible light at the end of the tunnel.

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