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FY13 earnings to mirror economic performance

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Almost every economic report coming out of the country is signalling slowed growth due to falling local production, low aggregate demand due to the current liquidity crisis. The forthcoming December reporting season is expected to mirror last year’s economic performance. Analysts forecast the 2013 earnings results to exhibit a mixed blend of pre and post election environment anxiety that characterised the business environment last year. As such there would be no major surprises from the 2013 reported financial results.

Economic growth and activity slowed in the last half of 2013 reflective of the retarding business environment. The liquidity situation started to gradually decline at a worrying rate and this became the ingredient for lower business activity.

Growth in margins is expected to be suppressed. The little growth that will be recorded will mainly be from cost containment strategies and enhanced operational efficiency.

In its trading update for the third quarter to December 31 2013, Delta Corporation said it had registered flat volumes due to lower consumer spending and economic slowdown.

Riding in an almost similar boat is NMBZ Limited, which warned investors it will report an attributable loss for the year to December 31 2013 as borrowers struggle to repay.

“It has sort of become a trend now to go into earnings season with low expectations, so beating those expectations is not a big deal, said Mr Jerome Negonde, a markets analyst.

EFE Securities managing director Mr Edgerton Tsanga said it was quite apparent that the economy slowed down for the better part of last year, and this will impact on financials.

“Financials from banks would be terrible (NMBZ has already issued profit warning) and retail would be terrible as well,” he said.
Mr Tsanga also cited the fall in the price of primary commodities on global markets as part of reasons why liquidity crisis worsened and demand has trended down. A good number of companies operating in Zimbabwe are likely to find themselves almost similar economic challenges that have affected the operation of Delta and NMBZ.

Delta said volumes for the quarter were flat compared to the same period last year while revenue were three percent down for the quarter and 2 percent for nine months.

Equities and Alternative Investments Analyst at FBC Securities Mr Albert Norumedzo said little was expected in the form of growth in the top line.

“Profit warnings statements have been issued by various listed companies in efforts to manage the downside effects on share price performance culminating from missed earnings targets,” he said.

“The agriculture sector is (however) expected to record marginal growth in earnings supported by a good rainy season that supported second half earnings.”

He said companies which have managed to diversify into export markets were likely to maintain or slightly improve margins. These would include Padenga which exports the bulk of its product to Asia and other developed markets notwithstanding the slowed global commodity demand that refrained huge increases in demand.

With margins falling under pressure from local economic hurdles, any major movements in reported earnings will be supported by a huge accruals component stirred mainly by revaluations.

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