THE DEFINITIVE TRUCKING SITE

May 2008

What do politics and the weather have in common? Answer: They can both play havoc with a company's financial results.

It's amazing how the weather is coming into play in business fortunes nowadays. Global warming, El Nino, floods, droughts - all these 'out of our control' weather influences are increasingly impacting on business performances and outlooks.

The latest company to feel the effect of this is JSE-listed transportation and logistics company Cargo Carriers, which has announced a mixed set of financial results for the 2008 fiscal. The surge in the economic activity in commodity based industries - in which the company has strong business - and a leap in property values, resulted in record earnings per share for the company, an increase of 38% from last year. 

This strong showing is tempered, however, by a number of factors which have resulted in headline earnings per share showing a decrease. Among these is the performance of the sugar industry operations which incurred far higher operating costs through moving sugar cane from wet fields as a result of unexpected and untimely rains.

In addition, an impairment of the assets of the company's Zimbabwe subsidiary took place in view of the uncertainties in that country. This resulted in a charge to the income statement of R6.4-million.

Commenting on the results, joint CEO Murray Bolton says the company has benefitted handsomely from its strategic positioning in the industrial sector.

"However, one of our stated business risks is that we are exposed to climate risk in our Sugar division. Sadly, the elements conspired not to rain enough in the Swaziland growing season and to rain heavily in the harvesting season, which drives our costs up. The net result for our sugar operation is a bottom line that is significantly down compared to last year."

Both the sugar and the timber industries are not easy ones in which to operate trucks at the best of times and when unexpected rains fall, the tough operational conditions become real hindrances to profits. Cargo Carriers is, however, making a plan to offset any future occurrences such as has happened this past year.

"As we've previously stated, we're working towards geographical diversification in the sugar industry in order to mitigate the climatic risk by growing our Sugar division further to the north of the East African sugar belt. These plans, along with recently announced relocations of quota controls from the EU, put us in a strong position strategically," says Bolton.

When it comes to political influences acting as hindrances, we all know that Zimbabwe is 'shagged' mainly - or more accurately, solely - due to the insane policies of Bob Mugabe. This too, as pointed out above, has shown up in Cargo Carriers' results. It never ceases to amaze how politicians so often bite the hand that feeds them.

Also reported in the results as a material impact to revenue and profits was the agreed sale of the final tranche of equity in the empowerment company Buhle Betfu Holdings (Pty) Ltd to the empowerment partners, making this company a Black owned transporter. This sale resulted in the deconsolidation of that company from the Cargo Carriers results and it being accounted for as an associate. This has decreased reported revenue and profits.

Despite the sugar-led earnings setback, Bolton remains upbeat about the group's prospects: "We are poised for market share growth in the steel, oil, fuel and chemicals divisions and despite the recent squeeze on macro-economic growth, these sectors are still poised for expansion and increased activity in the near-term.

"The sugar operations have started the new fiscal well and the interventions of our supply chain optimizing Solutions division in both our Sugar and our Steel business will be positive. In all, the strategic work that has been done to refocus our business towards the specific needs of industries and the increased ability that this focus and the Solutions division give us to add value, position us well for the future."

Most important is that there has been further investment in the vehicle fleet ensuring that the trucks - the lifeblood of any transport-based solutions business - are as fuel and safety efficient as possible. And rightfully so because without trucks, it all comes to nil. Ask Bob Mugabe. He'll vouch for that.