- Ariston Holdings Limited's loss position widened to ZWL$33 billion in 2023, compared to ZWL$9.6 billion the previous year.
- The company has a heavy reliance on borrowed funds, with borrowings amounting to ZWL$38.4 billion.
- Tanganda Tea Company, a competitor of Ariston, managed to achieve profitability in 2022 despite economic challenges.
Harare - Ariston Holdings Limited faced a formidable challenge as its loss position widened to a staggering ZWL$33 billion in the full year that ended on September 30, 2023, compared to a loss of ZWL$9.6 billion the previous year. The company's last glimpse of profitability was in 2019 when it effectively managed to contain both production costs and operating expenses. However, recent years have witnessed a distressing trend, with production costs increasing by 9% between 2022 and 2021, accompanied by a corresponding 9% surge in operating expenses. To exacerbate matters, the period between 2021 and 2020 witnessed a staggering 30% spike in production costs, coupled with an alarming 72% surge in operating costs. Regrettably, this worrisome pattern persisted, with a 10% escalation in the cost of production during the 2023 financial year. Astonishingly, the cost of production skyrocketed to a staggering 44.8 billion, surpassing the revenue of 35.5 billion, solidifying its unfortunate status as an annual feature for the business.
In the 2023 financial year, Ariston found itself burdened with borrowings amounting to a significant ZWL$38.4 billion. This hefty level of debt highlights the company's heavy reliance on borrowed funds to sustain its operations, potentially amplifying its financial risks and obligations. Furthermore, Ariston has established itself as a perennial loss-maker, consistently witnessing expenses surpassing its revenue, leading to negative profitability year after year. This persistent trend points to inefficiencies and difficulties in effectively managing costs. When a company fails to generate profits or incurs substantial losses, it often struggles to optimize its production processes and negotiate favorable terms with suppliers or service providers. These factors contribute to an elevated cost of production for the company, further exacerbating its financial challenges.
Ariston Holdings Limited's strategies fell short in their attempts to navigate the challenging economic conditions and mitigate losses while enhancing returns for shareholders. The results indicate that the company has encountered difficulties in implementing effective cost-containment measures amidst a turbulent economic environment characterized by currency depreciation, inflationary pressures, power shortages, and global economic shocks.
As part of its cost-cutting strategies, the Group decided to transition from human labor to mechanization. In 2021, the Group announced its long-term plan to mechanize its entire operations, aiming to address labor-related challenges and enhance productivity. By automating certain production tasks, the Group was able to free up labor resources for harvesting activities, leading to notable improvements in production volumes, especially in the tea sector.
Tanganda Tea Company, a ZSE-listed agro-based company operating in a similar industry as Ariston, experienced a loss in 2021. However, the company managed to effectively manage its costs and achieve profitability in 2022. Despite facing challenges such as inflationary pressures, foreign currency shortages, the Reserve Bank of Zimbabwe's 40% retention thresholds, and frequent power cuts, Tanganda Tea Company reported a profit after previously being in a loss position. Looking ahead to the 2023 financial year, Tanganda Tea Company is expected to maintain its profitability. This is supported by their performance in the first nine months of the year. The company has also announced that its full-year results will be released on or before January 31, 2024.
In terms of production and volumes, Ariston Holdings made a strategic decision at the start of the 2023 financial year to consolidate the tea processing operations of two out of three Tea Estates into a single factory. This consolidation meant that the green leaf from these two estates would be processed in the remaining factory. To accommodate the increased volume of green leaf from both estates and enhance the quality and quantity of the top export grades, the equipment in this factory was upgraded.
Furthermore, in a proactive move to address frequent power outages, a solar generating plant was commissioned at the factory. This solar plant began operating in July 2023. As a result of these changes, the Group now operates two tea processing factories instead of three, which was the case in the previous year. While the consolidation and upgrades aimed to achieve anticipated cost savings, the full impact of these savings is expected to become more apparent in future years.
The volume of tea declined by 34% from 3,158 tons to 2,427 tons. This decline was due to pruning down 20% of the lowest-yielding tea gardens for the season, as the costs of fertilizers would have made their viability marginal. However, these gardens are expected to come back into production in subsequent years at a more vigorous level. Despite the decline in volume, there was an improvement in the overall average selling price of tea, which increased by 68% from USD 1,075 per ton to USD 1,875 per tonne.
Export tea sales volumes improved by 21%, with a 6% increase in the average selling price. On the other hand, local tea sales volume declined by 6%, although there was a significant improvement of 38% in the average selling price. This improvement was largely driven by the dollarization of the local economy. In terms of USD revenue, the total tea revenue increased by 29% year-on-year.
The production volume of macadamia increased by 23% in the current year compared to the previous year. However, the oversupply issue that arose from the effects of COVID-19, where major world economic players were in lockdown, persisted into the current year. As a result, prices remained lower than in the pre-COVID-19 period, although demand improved, albeit at lower prices. The average selling price of macadamia declined by 40% in the current year compared to the previous year.
The "Other Products" category, which includes potatoes, commercial maize, seed maize, soya beans, and bananas, contributed 19% to the Group's turnover, up from 10% in the previous year. Given the challenges faced during the reporting period, the Group's diversification of product offerings became more important than ever.
As already hinted the most significant investment made during the period was in a solar plant located at Southdown Estate, Chipinge. The plant is integrated into the Zimbabwe Electricity Transmission and Distribution Company (ZETDC) and operates on net metering. It came with a 1.2-megawatt storage facility to support the tea factories' continuous operation. This investment not only leads to financial savings for the Group but also aligns with the Group's strategy of safeguarding and enhancing environmental resources and processes through the use of renewable energy. The expansion of macadamia orchards continued during the current year, and road rehabilitations were undertaken at all the Chipinge and Chimanimani operations to reduce repair and maintenance costs caused by a poor road network.
The 2023/2024 agricultural season is expected to have lower-than-normal rainfall. As a result, Ariston will need to heavily rely on its irrigation systems for mitigation, while dryland activities will be minimized. The tea production season has started well, with harvests exceeding those of the previous comparative period for the company. Further to that, macadamia orchards, so far, show a better nut set compared to the previous period. Export prices for macadamia in the 2023/2024 season are expected to be higher than the prices achieved in the current year. The global oversupply situation that arose during the COVID-19 period is believed to have come to an end, with the market now being undersupplied. Buyers are increasingly seeking offtake agreements for the upcoming season, indicating a positive trend toward returning to pre-COVID-19 conditions. Ultimately, Ariston will need to focus on quality, production efficiencies, and cost-cutting measures.
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