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At The Market with Tetrad

Seedco reaps fruits of regional diversification

ONE of the key economic policy measures, as enunciated in both the 2004 budget and the governor’s monetary policy statements was that state-owned en

terprises were expected to become self-sufficient and to charge economic prices.

Seemingly, in contrast to this, however, the issues of commercialisation and privatisation of parastatals have been conspicuous by their absence in the last two years’ budget presentations.

The government reportedly intends to set up, and/or reincarnate, some of the abolished agricultural based parastatals. Purportedly, first to be set up would be a Horticultural Authority which it is expected would be operational within the next three months. This entity would operate alongside the independent Horticultural Promotion Council. Also on the cards apparently are plans to reintroduce a cotton marketing authority, the justification being that corporate sponsors and buyers of cotton have been exploiting farmers by paying uneconomic producer prices. If the proposed Cotton Marketing Board (CMB) is going to be modelled along the same lines as the GMB then one could again see a situation whereby the CMB subsidises the producers, (at the taxpayers expense of course!) by, for example, buying from producers at say $4 000 per kg and then selling the cotton to ginners at $1 100 per kg. It may seem illogical but the GMB is currently paying maize farmers $300 000 per tonne and selling it to millers at $211 756 per tonne. Where is the economic pricing there? Ironically, under this arrangement the grain utility is still expected to be profitable and self-sufficient. Perhaps that ought to be the first area that needs attention from the Minister of State for Policy Implementation. But for now the setting up of new parastatals could turn out to be just an increase in loss-making government enterprises which would put further upward pressure on the budget deficit.

Turning to corporate results, the focus will be on the year-end results of Hippo Valley Estates and Seedco. Hippo brushed aside cane delivery wrangles, haulage constraints and low sugar production to produce a good set of financials. Revenues grew by 428% to $101,7 billion, inhibited in part by price controls on sugar, which were in place for the better part of the first half, and a 17% decline in total sugar production from 284 109 to 236 116 tonnes. Cane deliveries from Mkwasine Estate decreased from 426 700 tonnes to 368 934 tonnes, while independent Hippo Valley growers delivered only 350 787 tonnes as opposed to 580 586 tonnes in the 2002 season. Constant machinery breakdowns and inclement weather in late October disrupted operations resulting in an extension of the milling season. A 15 percentage point improvement in operation margins from 20% to 35% saw operating profits increase by 840% to $35 billion. Conversely, however, the upsurge in interest rates in the second half resulted in the interest charge recording a 3 173% increase to $7,3 billion. Income from associates of $2,3 billion was 746% higher than 2002 inflows of $272 million. This commendable performance was attributed to satisfactory results from NCP Distillers.

The inflows from associates did little to dampen the effect of the huge interest charges, however, as attributable earnings came out at $20,8 billion, restricted to a growth rate of 718%. This nevertheless compares favourably with the December inflation figure of 599%. The complex legal dispute on the ownership of delivered cane and payment thereof remains unresolved. Going forward, the company expects a full allocation of irrigation water and provided cane haulage problems are timeously resolved, cane deliveries and hence sugar production is expected to be in line with 2003 levels. However, the continued listing for compulsory acquisition of both the company’s and Mkwasine’s estates casts an uncertain pall on the future.

Seedco’s results were excellent. Turnover increased by 687% to $92,5 billion, with regional operations contributing $41,2 billion. Despite a 33% decline in volumes, local turnover increased by 720% courtesy of a favourable product mix. On the other hand regional sales grew by 649% on the back of higher selling prices and a depreciating local currency. Other operating income recorded a 10-fold increase to $13,3 billion, of which $12,6 billion was in the form of exchange gains. Local and regional overheads increased by 685% and 900% respectively. Aggregated overheads at $23,6 billion were 814% up on the prior year. Profits from operations, increased by a massive 1 033% to $42 billion, as operating margins gained 14 percentage points to 45%. The growth in margins was driven by favourable prices and the exchange gains.

Net financing costs of $2,8 billion were incurred, compared with $48 million in 2002, reflecting the increase in the group’s borrowings which stood at $23,6 billion, or a net gearing of 19% at year-end.

After accounting for the taxation charge which moved upwards from 16% to 23%, as a result of the EPZ factory’s adjustment from nil to the 15% tax band, and minority interests of $786 million, bottom line earnings of $29,3 billion were realized, up 870% on 2002.

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