By Admire Mavolwane
THE business community, in particular that sector which actively participates in the foreign currency auction system, is surely eagerly waiting for the third quarter monetary policy revie
Of paramount interest to most will be the prospect of an upward review in the amount on offer, which has so far remained pegged at US$10 million since August 19.
On the other hand, bids tendered have in the past couple of weeks risen to as high as US$60 million. The last three auctions have, however, seen demand slackening to US$40 million. In percentage terms the amount allotted, compared with the total bids, has “improved’ from around 16 to 24%.
The apparent slowdown in pressure at the auction appears to be more as a result of bidding fatigue rather than a decline in effective demand. The difference between the highest and lowest bids tendered has narrowed significantly with the most recent auction having a two cents spread!
A conclusion that might be drawn from the fact that the reduction in demand has coincided with convergence of the highest and lowest tenders, is that most importers have realised the futility of trying to second guess which bids would be accepted or rejected and are no longer participating in the system.
Lately, the tendering process has been reduced from trying to estimate the range or interval to guessing the actual rate. The table shows the spreads for the first five and the most recent five auctions.
Also of concern to many exporters, and an issue that they hope will receive attention in the monetary policy review, is the valuation of export proceeds. Exporters have had to contend, depending on the magnitude of the import content of goods exported, with both the shortages of forex and the virtually static exchange rate that has not moved in tandem with local official inflation rates. Theoretically, taking the first auction rate in January this year as the base, had the Zimbabwe dollar depreciated in line with monthly inflation it would be trading at $7 512 to the US dollar.
Furthermore, if one assumes the parallel market rate as at the end of December 2003, of approximately $6 000:US$1 to have been a correct valuation, then the local dollar should be $10 740 to the US dollar.
The trading update published recently by Ariston bears testimony to the adverse impact of the virtually static exchange rate on profitability. Stakeholders were advised that in the year ended September 30, volumes, with the exception of coffee, have increased over the prior year.
Tea production is up by 10% and international prices have been at acceptable levels. Conversely, although the group has managed to export more than 30 million flower stems, prices were generally below expectation. This year will see significant contribution from macadamia on the back of increased production which reached an all-time high with over 400 tonnes being exported and prices which are substantially up on last year.
However, as alluded to in this article, the “compressed exchange rate, coupled with inflation, which in many instances exceeds the official figures, has reduced margins and profitability. Interest costs have also been an added burden”. Shareholders were also advised that as a consequence, the group’s results to September 30 will, unlike previous years, not show a substantial increase in the second half and it is anticipated that financial performance for the year will be similar to that achieved in the prior year.
The group also notified shareholders that an EGM will be held on November 5. It is the board’s intention to seek shareholder approvals to raise additional capital. The proceeds from the capital raising will be applied towards the funding of acquisitions, capitalisation of the Shamva Frozen Vegetable operation, paying off of the debt and augmentation of working capital. In addition, the group advised of the appointment of Kumbirayi Katsande as the new managing director, taking over from Bill Leith who is retiring with effect from November 1.
Turning to results, this week we look at Astra’s figures for the year ending August 31. A decline in demand in the last eight months of the financial year saw the company recording a sub-inflationary increase in turnover of 292% to $124,2 billion. The group’s businesses, being construction sector-based, were hugely affected by the post December 18 liquidity crunch and slump in aggregate demand.
Operating profits grew at a slower rate of 136% to $31,2 billion, as operating margins declined from 42% to 25%, succumbing to cost pressures which have generally increased not only ahead of inflation but also revenues.
Net interest charges of $963 million were incurred compared with an inflow of $100 million in 2003. A significant portion of the interest expense came in the first half when the group was caught in the interest rate hike of December 2003. Attributable earnings of $19,4 billion were realised, up 121% on the $8,8 billion achieved in the prior year.
Good news for shareholders, however, came in the form a dividend declaration by the board of a generous $15 per share. Astra joins the ranks of DZL, CBZ, Innscor and a few others who have managed to continue paying dividends during these difficult times.