Cairns defy the odds

IN a market where most companies are either downswing or closing shop, Cairns Holdings Ltd (Cairns), has defied the odds and is recovering after being hamstrung by macroeconomic challenges that saw average industry capacity utilisation plunge from 57,2% in 2011 to 39, 6%.

By Taurai Mangudhla

Although the former ZSE-listed company is yet to close a deal that will bring in a new major shareholder and raise more than US$8 million capital towards resuscitating the business, a US$1 million bail out has given the company a new life.

Judicial manager Reggie Saruchera told businessdigest the company had turned a corner after injection of the US$1 million under government’s Distressed and Marginalised Areas Fund (Dimaf) to grow capacity utilisation from 7% before the funding to current levels of between 35% and 40%.

In the short term, Saruchera said the company targets to grow capacity utilisation to between 75 and 80% after concluding the deal with a new investor and securing the much needed capital.

“The new investors are bringing in US$8 million of the US$8 million. Of the US$8 million, US$7 million will be for new equipment while US$1 million will be for refurbishments,” Saruchera said at a tour of the company’s plant in Harare last week.

Saruchera said new equipment had already been purchased and was commissioned at the company’s various plants including an extruder machine which has huge capacity for all corn based extrusion processes.

He said negotiations were at an advanced stage with a potential investor, but could not give possible time lines for conclusion of the deal.
In October last year, businessdigest reported Cairns was on the verge of concluding a deal which would see a South African investor acquiring a majority stake in the company.

This follows reports that a South African-based international private wealth and multi-asset investment firm, Vasari Global Holdings (Vasari), had won the bid for a controlling stake in Cairns.

Vasari was said to be eyeing the 67% stake in Cairns which was disposed of by the Reserve Bank of Zimbabwe.

Cairns risk, administration and group company secretary, Jeremiah Kwenda said the US$1 million Dimaf facility had gone a long way towards resuscitating the company’s operations.

“We have new equipment in this plant here in Harare including the extruder and we have also added new pieces of equipment in Mutare , Marondera and at Charhons,” said Kwenda in an interview.

“The extruder is used to make the Jupiter’s, Corn Kels and the Willards things.”

Econometer Global Capital (Econometer) head of research, Takunda Mugaga said Saruchera’s immediate target should be to increase capacity utilisation to 60% by year-end to remain viable.

“For a firm in the mould of Cairns, there is a lot to do given that 35% capacity utilisation for a company which specialises in low value products is not sustainable in this market. The focus must be on raising capacity utilisation to about 60% by year end,” Mugaga told businessdigest.

He said Saruchera’s role as judicial manager was not difficult when dealing with a brand such as Cairns with products that have a huge demand both locally and outside the country’s borders.

“In addition Cairns’ business model is not capital intensive which implies that any credit which can be extended to the company makes significant impact,” added Mugaga.

He said Saruchera’s contribution should be noted as he took over the company at the height of its downfall.

“One interesting development is that banks such as ZB Bank which have lent large sums of money to Cairns remained confident of recovering it as evidenced by their business support and support and resuscitation services,” he said.

Cairns was put under judicial management late 2012 leaving 1000 employees stranded, but Saruchera has managed to recall a significant portion of the workforce.

Cairns had succumbed to a host of economic challenges including lack of working capital and in July 2013 voluntarily delisted on the Zimbabwe Stock Exchange.

The manufacturer reported a US$8,1 million loss for the year to August 2012 due to operational constraints including a US$11 million debt albatross.