Turnall’s volumes catching asbestosis

By Admire Mavolwane



IT used to be only death and taxes that were inevitable. Now, of course, there is inflation and currency change.


The

latest cosmetic surgery that the economy has gone through is a liposuction to remove three zeros from the Zimbabwean currency. This was achieved through the introduction of a new “family”, or is it “brood”, of bearer cheques.


Apart from the new currency, everything else remains the same and now that the 21 days of excitement are over it is back to normal business. It is still confusing as one has to constantly qualify whether one is speaking in “old”, or “new” or “re-stated currency” — terms which, in our view, are more appropriate than the official term, “re-valued”.


Welcome as it is, the bad news is that currency reforms are unfortunately always symptomatic of the entrenchment of hyperinflationary conditions.


The economic history of Germany and the former Yugoslavia, for example, bears witness to this assertion.


According to the Reserve Bank’s Weekly Economic Highlights — the latest one available on the website being as at the of June 30 — the total amount of currency in circulation amounted to $21,7 trillion, compared with $12,8 trillion in January this year.


During the first four months of the year currency in circulation had been growing by approximately $3 trillion a month. Extrapolating that for the period to June, we would have expected the currency in circulation to be around $27 trillion.


However, the numbers $44 trillion or $41 trillion, have come up a number of times as being the total amount of currency in circulation as at the end of June.


How the total value of the bearer cheques in circulation could have doubled in two months remains something of a mystery that is yet to be explained.


One conjecture, though, is that during that period the exchange rate started to bolt on the much maligned parallel market, such that the number of “bearers” needed to consummate these “foreign” transactions doubled.


Whether the above explanation is the true value of “X” in the equation or not will only be answered in the fullness of time. Otherwise, it is for now an assumption that we just have to be satisfied — or unsatisfied — with according to our preferences.


The June reporting season is now in full swing amid the confusion of whether the results should be in “new” or “old” currency. Perhaps the Zimbabwe Stock Exchange should have come up with a firm position as to which currency to use for the publication of results.


In our view all financials as at June 30 2006 should be in the “old” currency and the change over to the ‘new’ currency should be treated as a post balance sheet event as it were.


TA Holdings was quick to embrace the change and produced its results for the six months to June 2006 in the new currency. The numbers more than underlined the fact that the investment holding company is now basically an investment income play.


Revenue inflows, consisting of premiums from the short term insurance interests and income from the hotels, grew by 1 025% to $2,5 billion, with $1,2 billion being the contribution of the foreign insurance interests.


At trading levels, the insurance concerns continue to disappoint, chalking up underwriting losses of $105 million locally and $24 million in the foreign operations. As at year end the foreign insurance business, mainly Botswana Insurance Company Limited, realised underwriting profits while Zimnat Lion has continued its perennially disappointing performance in this respect.


After the merger with AIG Zimbabwe, an entity renowned for its profitability at this level, it had been hoped that the latter’s skills would rub off on Zimnat Lion, but this was not to be. The hotels continue to do well, possibly under even more difficult conditions, maintaining occupancy levels at 40% and achieving a trading profit of $73 million.


Investment income, the mainstay of the group, increased by 1 919% to $1,3 billion thus ensuring that after inflows from associates of $188 million and finance income of $9 million a respectable twenty two fold increase in profits before tax ($1,4 million) was achieved.


Attributable earnings of $945 million were realised after taking out the provisions for tax and outside shareholders’ interests. This equates to a return of 2 788% over the comparative period.


Turnall’s results (in old currency) for the same period show that the forecast real economic growth will not be on the back of the manufacturing sector. Volume sales declined by 46% when compared with the prior period of 2005 and capacity utilisation stood at 55%.


Against this background turnover growth at 703% to $1,3 trillion was understandably sluggish. Export volumes, however, grew by 13%, mainly to South Africa and Botswana and their contribution to sales increased to 10%, up from 4% in the previous period.


An improvement in operating margins from 39% to 54% saw the corresponding profits increasing by 1 149% to $737 billion. Cash flows remained positive with inflows from operations amounting to $738 billion. This is notwithstanding the tightening of credit terms by suppliers.


As a result of the investment of surplus cash, net interest income worth $66 billion was achieved which went a long way to boosting the bottom line. In the final analysis attributable earnings of $578 billion were realised, up 1 212% on the prior period.


We expect all the manufacturers still to release their results to be singing from the same hymn book in terms of volumes and capacity utilisation. At the end of it all, one is forced to ask where the economic growth of between 0,5% and 2% officially expected this year will finally emanate from.

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