Industrial firms singing the blues

HARARE - Industrrial counters on the Zimbabwe Stock Exchange continue to sing the blues under the liquidity crunch as high financial costs eat into their profits.

Weighed down by a persistent liquidity crisis and unrelenting overheads in a market where demand had remained subdued, several manufacturing companies, including Turnall Holdings, said they were still burning, but the intensity of the pain was not as deadly as the volatile hyperinflationary era.

Under the multi-currency regime introduced in 2009, overheads had stabilised, government had loosened its ruthless grip on prices, and inflation had dropped to 3,63 percent in August 2012 from 500 billion percent in December 2008, according to government statistics.

The relatively positive indicators had reignited industrial capacity, but skyrocketing interest rates remain the outstanding limiting factor, reporting counters indicated.

Market experts warn that severe liquidity constraints prevalent in the economy are driving up borrowing costs to unsustainable levels making it very difficult for local industry to compete with imports.

PG Industries Limited (PGI) recorded a net loss of $2,7 million for the six months to June due to working capital constraints, low retail sales volumes and high interest burden.

Once regarded as one of Zimbabwe’s major construction industry players, PGI has struggled to make an impact in the dollarised economy and has over the last four years scaled down operations, embarked on a retrenchment exercise and closed 38 branches to remain with only 22.

Hillary Munyati, group chief executive recently told analysts that although the group had put in place various strategies to see the group operating on a going concern basis, full potential will only be realised if more working capital is injected into the business.

“We are looking forward to dispose properties not being utilised by PGI businesses with a book value of $5,15 million, and a disposal of the remaining investment in an associate company and recovery of loan investment in the associate company with a combined book value of $4,35 million,” said Munyati
Another industrial counter General Beltings Holdings revenue for the half year to June 30 decreased eight percent to $2,9 million due to domestic working capital challenges.

General Beltings chairperson Godfrey Nhemachena said the group is pinning its hopes on a capital raising initiatives, which will likely see the company returning to profitability.

“At the last annual general meeting shareholders approved the raising of additional long-term capital to address the going concern challenges of the company as well as taking advantage of market opportunities,” he said.

Asbestos manufacturer Turnall Holdings reported an eight percent decline in half-year profits as demand for company products suffered from depressed demand.

Group profits over the six months to June this year stood at $2,5 million compared to $2,7 million last year.

Turnover from continuing operations, at $18,5 million, was also down 16,5 percent from the $22,1 recorded last year.

Finance charges topped $1,2 million over the same period due to increased short-term borrowings.

Chief executive John Jere said the business had struggled in an operating environment characterised by severe liquidity challenges, working capital constraints, depressed demand and exorbitant interest rates ranging between 15 and 25 percent.

However, some industrial counters continue to record strong earnings despite operating in an unfriendly environment characterised by high energy costs, unreliable supply of electricity and outdated machinery.
Cement manufacturer, Lafarge Cement Zimbabwe’s total revenue to June increased by 57 percent to $34,3 million driven by high sales volumes.

Revenues were up from $21,9 million in the corresponding period.

Basic earnings per share rose from a negative 0,5 cents to 3,5 cents and profit after tax was $2,8 million up from $0,4 million.

Domestic sales volumes of cement increased by 45 percent compared to the prior year period.

Lafarge chairperson Muchadeyi Masunda said local demand for cement would remain strong and the firm was well positioned to respond to the growth of the construction industry, adding that high capital expenditure incurred on plant improvements was starting to bear results.

“A profit before tax of $3,8 million was recorded in contrast with a loss of $0,4 million for the prior period,” Masunda said.

Innscor Africa Limited earnings per share jumped by 48 percent to 7,1 cents on the back of strong growth in revenue for the financial year ended June 30, 2012.

Headline earnings per share for the year were 6,29 cents, which represents a 30,4 percent growth year-on-year.

Group revenue came in at $627 million compared to $516 million over last year’s comparative period.

Profit after tax for the period under review stood at $48,5 million from $32,7 million in the prior period.

“The group performed to expectation during the course of the 2012 financial year, posting another set of solid results with good revenue growth and efficiency at earnings level,” Innscor chairperson David Morgan said.

The strong financial performance in the financial year to June 2012 resulted in directors declaring a 1 cent final dividend to take the dividend for the year to 1,75 cents.

Volumes in the bakeries division increased by 53 percent largely driven by a third new line in the Harare plant, which was commissioned in November last year.

Customer accounts in the fast foods business unit, which also falls under bakeries, grew by 11 percent in Zimbabwe and 11 percent in the region. - John Kachembere

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