Wide disparity creates SADC hurdle

Wide disparity creates SADC hurdle

Nevin, Tom

THE TOP 200 COMPANIES IN AFRICA

Southern Africa

The Southern African Development Community (SADC) has reiterated its determination to see a single currency in circulation in the regional bloc by 2016. The biggest hurdle to overcome is the disparity in country GDP growth, inflation rates and monetary values, and how they can be reconciled for equity in tender.

For example, between 2000 and 2003, Zimbabwe’s economy contracted at an average rate of 6.2% a year, while in Mozambique the economy expanded at 7.9% and in Angola at 6.7%. In 2004, inflation in Zimbabwe averaged 382%, compared with 45% in Angola and 1.4% in South Africa. That state of affairs is well demonstrated in the way companies fared in the SADC’s diverse economies.

Leading SADC companies

First National Bank – Botswana

Botswana companies that shine with good results reflect the government’s drive to diversify the economy away from its dependence on diamonds. Financial services have been particularly strong as a result, with First National Bank making impressive gains. The bank’s interim results showed stable growth at all key indicator levels.

Stockbrokers Botswana reports that growth in advance of 15.4% coupled with a 58.6% decline in impairments facilitated a 7.1% increase in net interest turnover from P103.86m to P111.2m. Headline earnings increased by 17.4% from P82m to P96m with strong cost-to-income ratio of just 38.8%. Proposed fee and commission increases, the first in three years, should guarantee continued growth, despite the tightening of government expenditure and an anticipated slowing of GDP growth.

Securicor Botswana

Even though Botswana has the lowest crime incident rate in southern Africa, security specialist securicor has released an exceptionally strong set of results, well ahead of market expectations, possibly reinforcing the belief that prevention is better than cure. Annualised revenue increased by 41.4% – to P66m in a 15 month period – with a steady growth in the company’s traditional activities of alarm response and cash management.

The company’s Botswana operations are in their third year . The balance sheet recorded a total asset growth of 43% annualised year-on-year on the back of a 66% increase in current assets from P13.3m to P22.2m. securicor Botswana’s outlook remains bullish with expansion into manned guarding on the cards for this year.

Swazibank

Swazibank celebrated its 40th anniversary by announcing an after tax profit of R11m ($2m) and received a laudatory pat on the back from Swazi Finance Minister Majozi Sithole who said: “It is befitting for us to congratulate the bank like never before and wish it many more profitable years”.

Total assets were stated at R895.2m, up from R683.2m last year. The capital position of the bank increased to R287m. As part of improving efficiency, Swazibank will introduce ATM services and networking in the not too distant future.

The minister noted that the country’s banking system remained stable, sound and profitable. They were well capitalised and the average risk-weighted capital adequacy ratio for the system was satisfactory, at 16.4% at the end of December 2004, compared to the required minimum ratio of 8.0%.

FNB Namibia Holdings

FNB Namibia Holdings and its subsidiaries continued to make ground in spite of difficult trading conditions by recording “moderate growth” in its operations for the half year ending December 31 2004. Earnings attributable to ordinary shareholders for the half year increased by 18% to R105.7m compared to R89.9 million in the previous half year which ended 31 December 200.3.

The Nainibmii Economist reports that core operational earnings, a measure of sustainable earnings, increased by 4% from R$98.4m to R102.8m. FNB said banking operations achieved good growth in both non-interest income and asset base for the past six months. Both FNB HomeLoans and WesBank have maintained the momentum shown in the results of June 30 2004, with a 20% growth in advances, the bank said.

Spotlight

SOUTH AFRICA

For South African business, 2004 was a very good year; and the first few months of 2005 are also doing nicely. This observation of the general state of the nation’s economy is reflected on most balance sheets at this time of annual reports; but you won’t find happy faces in boardrooms, where directors look to foreign exchange-linked commodities for their dividends. But more about that later, let’s first hear the good news.

Tame inflation, the lowest interest rates in 24 years, business confidence nudging record highs, an expansionary national budget and strong consumer demand are all putting a rosy glow on the South African economy.

According to the most recent survey by the South African Chamber of Business (Sacob) the business confidence index scored a near-record high of 127 in February stimulated by increased manufacturing production, low inflation and retail sales.

The icing on the cake came by way of new liquidation and insolvency figures that show insolvencies plunging 34% last year, with 14% fewer liquidations. Richard Downing, Sacob economist, believes the 2004/05 budget will “be good for demand and selling in the economy, on top ot high levels of spending in the private sector”.

The government’s commitment to economic growth through higher social spending and sharply increased infrastructure development will pump money into the economy, create jobs and continue to sustain the manufacturing sector through internal demand.

The bad news lurks, however, with excess demand triggering greater imports, currently made more affordable by the strong rand, and increasing the deficit on the current account of the balance of payments. In other words, while healthy local consumer demand is making up for diminishing export activity and heightened imports, the negative balance of payments gulf will catch up with the spending spree sooner rather than later with punishing effect.

Downing also warns that a slowing of portfolio capital inflows propping up the deficit could give rise to “a problematic situation arising on a broad economic front”.

Other parts of southern Africa, specifically those of the South African Customs Union (Sacu) and the Common Monetary Area (CMA) shared in their parent’s mostly good economic fortune through their closely-linked economies and equity of currency.

The following companies are rated, in no particular order, not simply on their 2004/05 financial fortune but also on the way they weathered the cross winds of domestic fluctuation and exchange rates.

Leading companies

SABMiller

Even though South Africa is beer country, its per capita consumption is way behind such stalwarts as Australia, Germany and Brazil. This doesn’t stop SABMiller from being one of the world’s largest brewing companies. With operations in over 40 countries, it has more beer brands in the world’s top 50 than any other brewer and it ranks among the top three brewers in more than 30 countries.

Every minute of every day, consumers the world over drink an average of over 46,000 pints of SABMiller beer. The brewer was formed two years ago after South African Breweries acquired Miller from the US conglomerate Philip Morris.

SABMiller’s first half profits, before tax, amounted to $1,196m, up 80% on the prior period, reflecting performance improvements from all business segments. Turnover increased 14% while the group’s total organic volumes grew by over 5% and market share growth was achieved in each business segment.

Anglo American

The legendary mining giant presented its faithful shareholders with a 59% rise in the headline share price and a 70% increase in dividend in a year that saw mining in South Africa relentlessly savaged by a strong, overpriced rand. It succeeded in cost containment and in managing a difficult relationship with the government. Its foresight to diversify out of South Africa has resulted in a better balance in its geographical earnings mix.

Old Mutual

Insurer turned financial services colossus, Old Mutual (OM) showed an operating profit increase of 46% after two difficult years. Contributors to recovery were by offshore product sales rising to Rl.Sbn and, in a case of the albatross becoming the golden goose, problem child Nedcor (OM’s fully-owned bank) turned a R118m loss in 2003 to a R2.1bn operating profit last year. OM’s foreign operations were star performers: sterling earnings were up 44% and the US asset management and life business rose by 23%.

FirstRand

The continued strong growth of the banking services conglomerate is due to the high demand for credit, particularly in the automobile and property sectors. Commercial bank subsidiary First National enjoyed a 90% increase in new home loans, while leasing sibling WesBank increased its business by close to 30%. Insurance division. Momentum, reported headline earnings rising 18% to R592m and Rand Merchant Bank scored 37% interest in non-interest income.

Edgars Consolidated

Edcon, the speciality retailer achieved a turnover of just over R10.5bn through its finely focused market segment led by its flagship store brand, Edgars. Through rapid expansion, the group now has 724 stores in South Africa, Namibia and adjacent territories.

Department stores in segment specific markets include Edgars, Prato, Boardmans and CAN while the discount operation comprises Sales House, Jet, Cuthberts, Supermart and Legit. The diversity of outlets allows the group to target the whole spectrum of income levels.

Ispat iscor

Withstanding the rigors of a major transformation in 2004, steel-producer Ispat Iscor became a subsidiary of the world’s second-largest steel producer, the LNM Group, which increased its stake in Iscor to above 50%. The group was renamed Ispat Iscor as a result. A business assistance agreement with LNM will allow “Iscor to remain at the forefront of technology in the steel industry and will allow us to maintain our international competitiveness by gaining access to additional marketing and process skills,” says CEO Louis Van Niekerk.

Results to September last year indicate that Ispat Iscor benefited from improved steel prices, with headline earnings rising by more than 300% compared with the same quarter in the previous year. Domestically, sales volumes increased by 33% compared with the same quarter last year.

Rainbow Chickens

Since its founding in the early 1960s, Rainbow Chickens has endured a rollercoaster ride like no other South African company, hitting crisis after crisis until Moroccan-born Frenchman, Yannick Lakhnati, took the helm in 1998, and inherited an attributable loss of R268m.

Hc launched a multi-million rand restructuring programme, streamlined processes and concentrated on high-value products. A profit of R30m was achieved in 2000, reached Rl62m in 2003 and, under new CEO Miles Dally, attributable earnings increased by 40.6% to R228m.

Tom Nevin

Copyright International Communications Apr 2005

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