- Overall volumes declined by 2%
- Exports grew by 16%
- Revenue jumped by 54% to ZWL75.2 billion
Harare- Amalgamated Regional Trading Holdings Limited (ART Holdings) has witnessed a decline in volumes across its main categories, with the exception of the Eversharp and estates divisions during the third quarter ended June 2023. This decline was attributed to national grid failure, exchange rate volatilities, and a "punitive" foreign currency retention policy imposed on exporters.
Overall volumes declined by 2% while the batteries and paper divisions registered a production decrease too.
Exchange rate volatility remains a significant challenge in the economy, as the crisis surrounding the Zimbabwe dollar persists. This volatility is compounded by ongoing issues of fiscal indiscipline, suggesting that a resolution to these problems is still a distant prospect. The unpredictable exchange rates and lack of fiscal discipline create an unstable economic environment, impacting businesses, investors, and the overall stability of the country's economy.
On the other hand, Zimbabwe has faced a significant increase in load shedding, reaching record levels since the beginning of the year. up to Mid May. This has been primarily attributed to lower water levels at Kariba Dam, which have adversely affected electricity generation. To address this issue, there is a need to deepen the gorge at Kariba Dam and replace aging power plants in order to improve their efficiency and ensure reliable electricity supply.
The load shedding situation not only impacted production but also resulted in increased production costs for the company. This was due to the need to rely on alternative power sources during power outages. Furthermore, the situation was exacerbated by the requirement to surrender 25% of foreign currency earnings to the Reserve Bank of Zimbabwe (RBZ) at the interbank rate in exchange for Zimbabwean dollars. This exchange rate mechanism added to the financial burden and challenges faced by the company.
To address the costs and efficiency challenges associated with blackouts, the batteries division commissed an additional 200KVA generator to provide backup power during outages. The division is actively collaborating with the power utility to upgrade the power infrastructure at the Workington factory.
The volumes for batteries experienced a decline of 9% compared to the previous year's volume of 90,445 units. This decrease was attributed to power-related downtime experienced at the beginning of the quarter, which affected production and resulted in lower output.
“Production efficiencies following the commissioning of new grid casters increased output in June and July which boosted the “Powered by Exide” winter promotion,” the Company said in a trading update.
The Company reported that the project aimed at increasing automotive battery manufacturing capacity is nearing completion. This expansion initiative will enable improved stockholding across all product ranges, enhancing the company's ability to meet customer demand.
There was a 5% decrease in paper volumes compared to the previous year's volume of 2290 tons. This decline was due to the impact of exchange rate volatility and pricing distortions, particularly in the formal retail sector.
The also company faced increased competition from imports, particularly in the informal market, where pricing and access to foreign currency played a crucial role in creating a competitive advantage. To enhance performance and drive efficiency across the value chain, the company plans to streamline and restructure its paper divisions.
According to the trading update, a new converting line will be commissioned before the end of the financial year. This investment is expected to yield cost savings, improve product quality, and increase tissue output. The company aims to leverage these initiatives to maintain a strong market position and meet customer demand effectively.
However, there was a positive development in export volumes, which experienced a significant recovery.
Export volumes increased by 16% compared to the previous year, reflecting improved product availability. This suggests that the company's efforts to address supply chain issues and enhance product availability in the export market have yielded positive results, despite the overall decline in volumes.
“The Group remains profitable however margins have come under pressure due to increased input costs and the impact of the punitive foreign currency retention policy on exports.”
Also, Eversharp volumes experienced significant growth, with a 28% increase to 12,430,000 pens. This rise was attributed to increased production output resulting from retooling efforts and improved power supply.
Exports to Zambia resumed, contributing to the positive performance. The stationery trading segment was also boosted by the launch of the Eversharp Mate and Eversharp Pen Pal brands, which were introduced in response to market demand.
In the timber sector, the volumes in Mutare Estates experienced a notable 7% increase, reaching 2,350 cubic meters compared to the previous year. This growth reflects a positive trend in demand for timber products. The order book for both structural timber and pallets remained robust, which indicates a consistent and strong demand from customers.
Outlook
Looking ahead, the company anticipates a continued challenging operating environment, but it remains resilient due to its retooling program, which has strengthened its position despite economic headwinds.
To maintain competitiveness, the company plans to leverage its global sourcing partners to secure cost-competitive raw materials.
The increased capacity and new equipment resulting from the retooling efforts will enable the company to offer a wider range of high-quality products to its customers.
By adapting to market demands and optimising its production capabilities, the company aims to overcome the challenging landscape and meet customer expectations effectively.
“The Group’s cashflow position remains constrained however management is confident that on-going restructuring initiatives will enable it to strengthen its balance sheet and achieve financial flexibility given the prevailing turbulent economic conditions.”
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