Earnings season: The outlook is challenging

30 Aug, 2019 - 00:08 0 Views
Earnings season: The outlook is challenging

eBusiness Weekly

Taking Stock Kudzanai Sharara

The earnings season has started in earnest with several listed entities having reported results for the period ended 30 June 2019.

BAT, Dairibord, FBC Holdings, reported a mixed set of results showing growth in revenue but a decline in volumes for manufacturers in particular.

In the current inflationary environment, growth in revenue is not something to be really chuffed about. Like FBCH CEO John Mushayavanhu puts it, comparing last year’s results with the current ones is ‘‘nonsense’’.

In the half year to June 2019, revenue was mostly driven by ‘‘gradual price adjustments’’ than by volumes growth. For some businesses, BAT for example, volumes actually came down quite significantly as consumers remained constrained for longer.

For the better part of the period under review, the country experienced price hikes on various commodities, with players in the value chain putting up prices resulting in revenue growth not backed by productivity and increased sales.

BAT for example, saw its revenue grow by 48 percent, while total volume was on a decline by 20 percent suggesting the revenue growth was on the back of price increases.

Of significance is the imported  Dunhill brand where volumes registered a 187 percent decrease.

As such, what investors should be focusing on is the message on how the business is expected to fare going forward. You can’t drive forward using the rear-view mirror. Investors buy future profits and growth.

However, from the reporting companies the future is fraught with challenges and offers little hope for outstanding performances.

BAT, which suffered heavily from decreasing disposable incomes, is not seeing any positive change for the reminder of the year.

“Consumer affordability will remain a key challenge going into the second half, given the high level of inflation, devaluation of the currency, and stagnant wages,” said acting managing director Stephen Nyabadza.

The rising cost of doing business is another huge area of focus for us, he added.

There is also little excitement at Dairibord with chairman Josphat Sachikonye saying “with respect to the future, the environment is envisaged to remain fragile and uncertain making it difficult for businesses to implement their growth plans.”

Sachikonye said given the aforesaid challenges in the operating environment, sales volumes for the second half are expected to be lower than what was achieved in the first half of the year.

As a result, the company will focus on the survival and hold strategy.

FBC Holdings, which performed reasonably well during the period under review, is however optimistic about the future with foreseen challenges creating “difficulties” but also “opportunities” for the group.

More guidance could help

Talking of challenges and expressing hope is however not enough for an investor to make an informed decision.

Investors invest in a company-based on future cash flows as well as growth in revenue and profits and a little more guidance from management would be welcome.

Investors deserve more information, more than a few lines that talk about “hope” and how “encouraged management” is by the new Government. Companies should talk about budgets in terms of sales volumes and revenue or talk about plans to invest, expand operations or recruit.

At least BAT talked about investing in the acquisition of a new line in its secondary manufacturing division, while Dairibord speaks to developing export initiatives in the region.

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