adminZimbabwean companies have been disposing of or closing down non-performing businesses and focusing on core areas.
Imara Asset Management division head Mr John Legat said an analysis of the latest financial results indicated that the most effective players tended to focus on core competencies.
“The results season has shown us that net profit growth has rarely matched or exceeded turnover growth. And, where it has, it is usually following a corporate restructuring where the costs have been taken in the previous year, allowing margins to rise and profits to grow on a more efficient cost base.
“Where management have been aggressive … (by) improving efficiencies, selling non-core activities and generally focusing on cost control, profit and cash flow growth has been substantial.
“Companies that have had poor results and negative cash flow (despite rising turnover) have, generally speaking, done little corporate re-organisation and rationalisation. But, faced with strong demand growth and the need to invest, have rather burdened their balance sheets with expensive debt in the hopes of growing themselves out of difficulty,” said Mr Legat.
This has had a positive effect on these companies’ volume growth this year.
According to the Confederation of Zimbabwe Industries 2011 manufacturing survey, overall output volume growth continues on an upward trend, increasing by 14,1 percent this year.
Imara says there has been no slowdown in turnover growth despite being three years into dollarisation of the economy.”Reports for the first half of 2011 range from 25 percent turnover growth to nearly
90 percent – excluding the banks – for the majority of listed companies.
“In almost all cases, growth is volume driven and not price driven, since dollarisation keeps competition high and prices under pressure,” said Mr Legat.
Such strong performance is expected to support Government forecasts of 10 percent Gross Domestic Product (GDP) growth this year.
There are, however, indications that volume growth will wane in the upcoming year, which will place a premium on the need for companies to contain costs.
“The concern for 2012 is that as turnover growth slows as momentum falls, it is imperative that cost growth also falls or, better still, costs stabilise,” said Mr Legat.
This is a significant challenge, however, in view of constraints inherent in the local operating environment, for example, high utility costs and high interest rates.
According to the IFC-World Bank Doing Business Report 2011, Zimbabwe is ranked 157 out of 183 on the ease of doing business as a result of such challenges.
leeroy
Online Reporter