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TETRAD – TZI: minorities two nil down

By Admire Mavolwane

PRIVATISATION of parastatals and state-owned enterprises which was a declared objective in government circles a few years ago, appears to have died a natural death, having been replaced b

y “commercialisation”.

The new buzz word now pops up here and there, normally in the budget proposals, but still nothing much seems to be happening on the ground. It is rather surprising why the government has slowed down even the commercialisation drive, given some of the success stories which include Cottco and Dairibord.

Disposal of the government’s stake in the former Astra Corporation demerged companies – Astra, Tractive and Cairns was put on hold and there are no indications as to when the deal will be re tendered.

Judging from the recent performances of the companies, the decision to suspend the government divesture has with hindsight, proved to have been an inspired one. The companies in their recent financials declared a combined final dividend of $75 per share which translates to $6,6 billion payable to government. This might appear to be a meagre amount given the size of the government’s budget, but is still substantial compared with the amount that could have been earned at the time of the anticipated disposal.

Having previously reviewed the year end to August 31 results from Astra Industries, we now look at those of Tractive and Cairns.

Beginning with Tractive, turnover grew by 581% to $144,3 billion, thanks to an improvement in trading volumes in the parts and service departments, particularly in the second half.

However, operating cost increases at 634% outpaced growth in revenues resulting in operating profits increasing at a diluted rate of 316% to $33,2 billion. Corresponding margins took a significant knock, declining from 38% to 23%. The increase in expenses was driven mainly by inflation, particularly in the areas of National Employment Council (NEC)-negotiated wages and the need to retain key skills.

Finance charges of $485 million were incurred compared with inflows of $43 million in 2003, as borrowings increased from $120 million to $913 million, none of which attracted concessionary rates. The booking of revaluation gains on the investment properties, of $5,4 billion boosted the bottom line which came out at $22,3 billion, a 375% return on the prior year.

Turnover for Cairns increased by 499% to $184 billion, generally reflecting the impact of the slump in demand experienced in the first half. The fire that destroyed part of the plant at Paprika reduced its volumes by 50% and saw its contribution to sales declining from 5 to 3%.

Operating margins came under pressure as the company could not pass on the high raw material and wage increases to consumers. Consequently, margins came off by eight percentage points to 29%. As a result, operating profits grew at a subdued rate of 370% to $53,6 billion.

A massive 3 648% increase in interest charges from $297 million to $11,1 billion, courtesy of the high interest rates experienced prior to the advent of the Productive Sector Facility, saw attributable earnings of $21,2 billion being recorded, up a sub inflation 218% on 2003.

Both Cairns and Tractive declared final dividends of $22,55 and 26,50 per share, respectively.

Lastly, this week we look at the TZI soap. The distressing story of TZI, which started on May 21 when the board released a notice to shareholders and requested a voluntary suspension from the ZSE, continued to unfold with the group’s new chief executive providing further details through an analysts’ briefing last Thursday.

In the May statement, shareholders were advised “of the discovery of certain material accounting and financial irregularities at its 54% owned export horticulture subsidiary Agriflora”. An international firm of accountants and management consultants was appointed to undertake an independent assessment of the financial position. The other 50% owned subsidiary, Fresca Holdings was at that time said to have been exposed to significant interest charges on its Zimbabwe dollar borrowings and was expected to report a loss for the first half to March 31.

In July, another announcement advised that Agriflora had been placed in receivership by its main creditors. The company had incurred more debt than its underlying assets and had to write down sums not recoverable from debtors as previous accounting records contained inflated sales and debtors’ balances.

The third chapter saw the interim results for the six months to March 31 being unveiled to the market. The group now has no assets to talk about, following the placing under receivership of Agriflora and the liquidation of Fresca, except its listing on the ZSE and Luxembourg Stock Exchange.

For the six months the group incurred a $66,2 billion dollar attributable loss as a result of the writing off of its investment of $66,1 billion in Agriflora. In practical terms, TZI now has no assets, following the distribution of 75% of Strategis Africa shares to the AZ Trust, beneficiaries of which were supposedly TZI shareholders.

However, according to the CEO, documentation regarding the Trust cannot be located.

Going forward, the new management team is working on a scheme to acquire a number of regional assets, together with proposals to “merge” with a local horticultural concern.

As most TZI shareholders will bitterly remember, of course, this is not the first time they have felt short-changed by the company, particularly in relation to the Agriflora investment. On Wednesday November 13 2002, the company published a trading update in which it alerted shareholders to the fact that Agriflora had decided to charge significant provisions and exceptional items against insect infestation that had arisen in the first quarter, some 12 months previously, which would materially reduce earnings expectations.

The disgruntlement among investors arose from the fact that just six weeks before, on October 3, the company had published a very upbeat update in which the said provisions were not even mentioned and forecast earnings were stated to be approximately 25% above forecast. The share price subsequently plummeted 58% in just two weeks, much to the chagrin of many.

The adage “once bitten twice shy” will no doubt be reverberating in the minds of investors who may have in fact been bitten twice. The “insect infestation” of Agriflora, accounting records has indeed proved to be fatal!

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