- Management uncertainties, global headwinds pull the Group in loss
Harare- 2022 has been an unfortunate year for many companies in Zimbabwe. The economic environment remained turmoil with the obvious headwinds, inflationary pressures, scarcity of foreign currency and exchange rate distortions as many businesses resorted to the parallel market to look for the golden currency, the greenback. Despite the rhetoric by the RBZ governor, John.P.Mangudya that the foreign currency Auction Market remained solid in the provision of foreign currency, this seemed more truthful in theory than in practise. Companies reported backlogs of up to 8 weeks. These, were exacerbated by the Russia-Ukraine war, which disrupted the global supply chains making it difficult to obtain key raw materials like oil, gas, wheat especially for African countries which depends mostly on Russia and Ukraine for wheat, fertiliser and oil while China’s zero% policy for COVID-19 shunned various markets. Imported inflation further heightened and the weight skewed towards the developing countries. In Zimbabwe, the epitome of a fragile economic environment was the recurrent blackouts as Kariba Power Station ran out of water while old infrastructure at Hwange Power Station caused irregularities in power generation.
In the wake of these calamities, many companies adopted strategic management, some going for the US dollars denominated bourse, Victoria Falls Stock Exchange to preserve value while other firms invested more on solar energy and other cost cutting strategies to generate income. In the US and Europe, multi-billion-dollar companies like Twitter, Facebook, Amazon laid off workers, a characteristic of transformational leadership, while some skewed more on mechanisation and artificial intelligence to reduce costs. In Zimbabwe, companies like RioZim, Econet Wireless, and Tanganda invested more on solar energy to deal with power uncertainities.
However, Ariston Holdings Limiteds’ strategies flopped to copy with the acute economic environment to minimise losses and increase returns for the shareholders. The Zimbabwe Stock Exchange (ZSE)- listed diversified Group, Ariston Holdings Limited capped the full-year ended 30 September 2022 in loss, a fallout that can be attributed more on the failure of the management to crop up surviving strategies in a turmoil environment. A company in the same line of production as Ariston, Tanganda Tea Company, a ZSE-listed agro-based outfit which made a loss in 2021 was able to keep pace with the costs, resulting in a profit in 2022. The company reported a profit from a loss position despite succumbing to inflationary pressures, shortages of foreign currency, RBZ’s 40% retention thresholds and extreme power cuts.
The graph below shows the Group's PAT over 4 years
The Group which focuses more on macadamia and tea production and diversified to potatoes, commercial maize, soya-beans, bananas and poultry posted a loss after tax of ZWL797 million from a loss of ZWL75 million in 2021, increasing by a whopping 961% which is an alarming figure.
The Group’s failure to make a profit is largely skewed towards the failure to adopt and employ cost-cutting strategies. The Group’s cost-containing strategies continued struggling since 2019 as witnessed by the continued increase in production costs and operating expenses. The results show that the Group has struggled to implement cost-containing measures in a turmoil economic environment coupled with currency depreciation, inflationary pressures, power shortages and global economic shocks.
The graph below shows the Group’s production costs and expenses over four years
Costs of production between 2022 and 2021 increased by 9% with operating expenses hitting a 9% increase as well while between 2021 and 2020, production costs shoot by 30% with operating costs soaring by 72%. The Group lastly recorded a solid profit after tax in 2019 when both production costs and operating expenses were effectively contained.
One of the cost-cutting strategies implemented by the Group was shifting from human labour to mechanisation. In 2021, the Group said in the long run, it plans to mechanise its whole processes to deal with labour and productivity issues. Improvements made through automation of certain production tasks released labour for harvesting resulting in improved production volumes, particularly for tea.
Loss of Chinese markets for macadamia nuts, loss of more revenue to Reserve Bank of Zimbabwe’s 40% retention thresholds and reduced macadamia production during the year under review seems to be the Group’s blame for the loss. However, every exporting company in Zimbabwe is succumbing to 40% yet and making profits despite being in the same economic environment where regulations, foreign currency availing and energy provision are a scum.
Revenue flopped by 12% to ZWL4.1 billion from ZWL4.7 billion in 2021. The Group said in real terms, the revenue line was adversely affected by the reduction in the average selling price of macadamia and lower macadamia nut yield in the current year.
Commenting on the loss after tax incurred during the reporting period, the Group’s chairperson, Alexander Jongwe said, “A current year loss from operations was posted arising from the impact of the mismatch arising from revenue from exports where Reserve Bank of Zimbabwe (RBZ) retention continued to be paid at a rate significantly lower than the rate being charged by local suppliers resulting in real erosion of value.”
In 2021, the RBZ increased the tax retention thresholds from 30% to 40% starving companies of sufficient foreign currency needed to fund and grow operations. RIOZIM, one of the leading gold mining companies once reported a loss of circa 55% in total revenues. However, in his 2023 national budget speech, Finance and Economic Development Minister, Professor Mthuli Ncube said the retention thresholds will be revised by the end of 2023’s first quarter.
Profit was further eroded by the low production of macadamia and market extinction in China for the macadamia nuts due to the COVID-19 pandemic which forced China to close its markets. That flooded the nuts in the market resulting in low prices.
Macadamia production volumes declined by 14% from 1292 tons to 1106 tons despite an improvement in product quality
“Unfortunately, due to the effects described above on the macadamia market size and demand, the average selling price declined by 21% when compared to the prior comparative average price.”
“As a result of COVID-19 lockdowns, the Chinese market remained largely unavailable to the rest of the world resulting in an oversupply for the nut cracking market with a decline in average selling prices,” said Jongwe.
However, despite the average export tea selling price declining by 1%, tea production volume continued on an upward trajectory with a 15% increase to 3158 tons from 2748 tons in the prior comparative period while export sales were up by 10%, a slight recovery in the tea market after the declines suffered with the onset of COVID-19 pandemic disruption.
Current year average selling prices for local tea sales improved by 12% in USD terms whilst volumes declined by 16% when compared to the prior comparative period.
The “Other Products” category comprising potatoes, commercial maize, soya beans, seed maize and bananas contributed 10% to the Group’s turnover, down from 11% contribution in the prior comparative period while revenue from poultry grew by 58% as a result of an increase in the number of placements.
“The diversification of the Group’s product offering has never been more important than in the current year. Aggressive growth in the crop offering of basic commodities grown from Kent Estate helped the Group immensely in the current financial year,” Jongwe said.
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