At The Market with Tetrad – The Zim Sun fails to rise


By Admire Mavolwane

FIRST Mutual Ltd shareholders and investors in general heaved a sigh of relief on Monday when the counter’s suspension was lifted by the ZSE after a three-month absen

ce.


The reinstatement came after the CEO and board chairman had ceded to demands from the ZSE to relinquish their positions in the group. Assuming that shareholders had shared the same sentiments, the recently held AGM provided the right and proper opportunity to press for the resignation of the two.


The whole First Mutual debacle brings to the fore the issue of shareholder rights and recourse. We are of the view that whilst reforms and other noble intentions are necessary and indeed welcome in the new economic order, implementation of the same should not infringe upon the rights of those parties who are supposedly being protected. As has been noted before, neither the reasons for the suspension nor the grounds under which such suspension was to be lifted were ever formally revealed by the relevant authorities, save for “quotations” in various press reports.


To date there has been no official statement from the bourse on the reinstatement. Companies have in the past been reprimanded, and sometimes coerced into issuing cautionary statements updating stakeholders on material developments. The bourse should at least practice what it preaches.


On the positive side for FML shareholders, however, is that the resumption of trade in the counter coincided with a bullish stock market which saw the industrial index gaining 14% for the week to Wednesday June 2 where it closed on 554 664 points. Demand for the counter has been strong, propelling the price from $14 to $35, (incidentally the issue price!), in the three days following the lifting of the suspension. There has also been an apparent re-rating of banking counters, particularly Barclays, CBZ and Kingdom, following the release of exceptional results from Finhold.


Turning to corporate results, this week we look at those from Zimsun, Powerspeed and Falgold.


We start with Zimsun, whose twelve-month results to March 31 probably reflect the true state of the tourism industry in the country. Foreign tourist arrivals on the one hand, remained largely depressed, whilst on the other, runaway inflation and the new monetary policy statement induced liquidity crunch in the last quarter led to a 21% decline in domestic tourism. This saw the leisure group recording a below inflation turnover growth of 434% to $43,2 billion.


By contrast, operating expenses grew by 552% to $38,7 billion, outpacing the growth in turnover by a wide margin. Consequently, operating margins eased significantly from 27% to 10%. A $1,3 billion operating loss at Elephant Hills Hotel reopened in 2003, and the tariff hike by Zesa in the last quarter contributed three and two percentage points, respectively, to the margin decline. Against this background, operating profits recorded a paltry 110% increase to $4,5 billion.


Net finance costs increased by 204% to $1,3 billion, as the interest charge ballooned from $18 million to $1 billion and an exchange loss of $240 million was incurred compared to a gain of $404 million in the prior year.


Attributable earnings of $3,4 billion were realized, up only 17% on 2003, which essentially represents an almost standstill position in relation to last year.


The first half to March 2004 saw turnover for Powerspeed, at $20,5 billion grow by a sub-inflation 356%, thanks to the infamous fall in demand. A two-week industrial action by staff had a further negative impact on performance.


The appreciation of the local currency that followed the new monetary policy reduced the cost of imported finished goods and raw materials, which mitigated against a 669% increase in overheads, to leave margins at more or less the same levels as the first half of 2003, losing three percentage points, to 31%. Operating profits, however, still grew at a diluted 314% to $6,3 billion.


The group was fortunate in that it had reduced its borrowings prior to December 2003 and thus had limited exposure to punitive interest rates. This saw net financing costs recording a relatively low threefold increase to $233 million. Attributable earnings came out at $4 billion which represents a 391% gain on 2003.


Falgold’s interim financials to March 2004, published last Friday, made dire reading for shareholders and presumably the gold mining community as whole. After a promising close to the year to September 2003 the mining concern had an awful first half.


Total gold production of 292,47 kilogrammes was 87,96 kilogrammes lower than the corresponding period last year impacted negatively by inferior yields grade and the seasonal effect of rain on dump treatments plants and open pit mining. Turnover grew by 457% to $11,2 billion as the group created a better revenue blend for itself by opting to receive a mixture of $61 000/gramme and the full international US dollar gold price on a consignment basis. This was done so as to meet both local and foreign currency requirements thereby minimizing recourse to the forex auction.

Operating expenses growth of 781% outstripped the growth in revenues resulting in operating losses of $13 million, compared with a profit of $739 million in the prior year. Of the group’s operations, only the Dalny Mine’s underground activities recorded an operating profit, of $760 million, whilst Dalny Mine dump treatment plant, Golden Quarry & Camperdown Mines recorded losses of $105 million and $563 million respectively. Venice Mine which is closed but under care and maintenance, cost the group a further $104 million.


A tax provision write back of $48 million, saw the group achieving attributable earnings of $35 million, a far cry from the $502 million of the same period last year.