TA to Recapitalise Zim Businesses

15 June 2010

INVESTMENT conglomerate TA Holdings Limited said it will concentrate on improving profitability of Sable Chemicals, the country’s sole manufacturer of ammonium nitrate fertilizer.

It said it will also focus on recapitalising its Zimbabwean businesses during the current reporting season.

To scale up production, TA Holdings plans to spend US$ 40 million over a four- year period refurbishing the ammonia electrolysis plant, Sable Chemicals.

The programme would be funded from a combination of debt and internal resources and this would give the plant an extended 10- year life span.

TA Holdings had failed to refurbish the plant over the last few years due to financial limitations, which had greatly compromised the ageing plant’s operational efficiency. The plant is over 20 years old.

Ammonia electrolysis is used for air separation processes that produce gaseous oxygen used extensively in the steel manufacturing industry, and hydrogen which is used in the production of nitrogenous fertilizer.

Announcing the group’s financial results for the year ending December 2009, TA Holdings Group Financial Director Bothwell Nyajeka said the group was pinning its hope on better profitability this year thereby returning Sable Chemicals to viability. Sable’s profitability had been largely compromised by high power tariffs, which resulted in higher costs of production because the firm‘s major cost center, the electrolysis ammonia plant, had been running on only four electrolytors out of 14.

“The key investment that is going to have significant impact on the group is Sable. We will look at what we can do to increase the amount of imported ammonia to reduce the local cost of ammonia production,” said Nyajeka.”We will continue lobbying government because fertilizer is key and strategic to agriculture in Zimbabwe.”

Nyajeka said the group only repair up to 10 electrolytors, as the remaining four required a complete overhaul.

“From next year we will spend US$ 40 million over four years on refurbishment of the electrolytors. We have only been undertaking routine repairs. We had seven units back online and on Saturday we had another one in operation, so we now have eight units back online,” Nyajeka said.

TA and Sable have made an arrangement with the government for a special power tariff regime ranging between US3c per kilowatt hour to US 4,5c, per kilowatt hour from January this year until next June, but the tariff system would rise in tandem with increasing output thereafter. Government also gave sable US$ 2, 7 million to cover electricity costs.

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 charges by ZESA then. When the plant was shut down last year, Sable had to rely on ammonia imports from South Africa, but this option could not be relied on due to supply inconsistencies related to logistical problems and the quantum required.

Sable’s viability could easily overturn the loss posted last year in TA’s operations.TA's Zimbabwe operations posted a US$2,4 million loss 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 US$ 1, 5 million deficit at Cresta Zimbabwe. Most of the conglomerate’s foreign operations achieved profitability, except Lion Assurance company of Uganda which recorded a US$238 000 loss. In Zimbabwe, TA has interests in Zimnat Lion, Grand Re, Cresta Zimbabwe, Zimbabwe Fertiliser Company, Aon Zimbabwe and FMI Securities.

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.

During the period under review, the group generated cash of US$1,5 million from operations from operations, mainly from foreign investments. Cash balance as at December 2009 amounted to US13 million, US $ 11,7 in foreign and US 1,3 million was generated from Zimbabwe.