TA Holdings Pin Hopes On Sable's Return to Viability

23 March 2010

(Herald 23-3-2010)

DIVERSIFIED Pan-African conglomerate TA Holdings Limited is pinning its hope for better profitability this year on the return to viability of its associate, Sable Chemicals, smarting from a US$4,2 million loss last year.

Sable's loss comes after the nitrogenous fertilizer manufacturer saved about US$4,5 million after a lower tariff was agreed with Zesa Holdings and Government.

The group, which is working on a US$10 million budget for recapitalisation and refurbishment of its businesses, posted a loss of US$680 971 and strongly believes the return of Sable to viability would significantly impact on the group.

Sable's profitability had been largely compromised by high power tariffs, which resulted in higher costs of production because the firm's major cost centre, the electrolysis ammonia plant, was running on only four electrolytors out of 14.

However, so far eight electrolytors have been brought back on line and the group hopes to have completed repairs on two more to take the total units in operation to 10, which would ramp output capacity to above 50 percent.

TA and Sable have made an arrangement with the Government for a special power tariff regime ranging between US3c per kilowatt hour to US4,5c per kilowatt hour from January this year until next June, but the tariff system would rise in tandem with increasing output thereafter.

The Kwekwe-based firm's electrolysis ammonia plant was closed for three months last year because the firm could not sustain operations at the US7,56c per kilowatt-hour tariff rate that was being charged by Zesa then.

Group Financial Director Mr Bothwell Nyanjeka said Sable's viability would have a huge impact on group profitability in the current financial year.

"The key investment that is going to have significant impact on the group is Sable.

"We will look at what we can produce locally and what we can do to increase the amount of imported ammonia to reduce the local cost of ammonia production.

"We will continue lobbying the Government because fertilizer is key and strategic to agriculture in Zimbabwe," said Mr Nyanjeka.

Alternatively, Sable might have to produce nitrogenous fertilizer by importing ammonia from South Africa, which, at US$526 landed cost per tonne, is cheaper than producing the ammonia locally, as this costs about US$750 per tonne.

The fertilizer producer has also entered into an agreement with Transnet of South Africa to refurbish more railway wagons to increase the amount of imported ammonia.

Sable's viability could easily overturn the loss posted last year in TA's local operations, which eventually drove the group into a loss for the period under review.

TA's Zimbabwe operations posted a US$2,4 millionloss attributable to shareholders while foreign operations had been marginally profitable at US$1,7 million after turnover of US$42 million was chewed up by US$40 million in expenses.

The local operations' loss was due to a US$1,5 million loss at Cresta Zimbabwe.

Most of the conglomerate's foreign operations achieved profitability, at US$1,7 million, except Lion Assurance Company of Uganda, which recorded a US$238 000 loss.

The Zimbabwean conglomerate has interests in Cresta South Africa, Botswana Insurance Company, Cresta Marakanelo in Botswana and management contracts for two new hotels in Nigeria while its subsidiary Trans Industry also secured a management contract with a Nigerian insurance firm.

In Zimbabwe, TA has interests in Zimnat Lion, Grand Re, Cresta Zimbabwe, Zimbabwe Fertilizer Company, Aon Zimbabwe and FMI Securities.

The group is working on a US$10 million refurbishment and recapitalisation programme for its hotels and insurance operations.

The group would finance the projects from a combination of debt capital and internal resources.