• Challenging weather impacts Ariston's tea production but boosts macadamia nut set.
  • Increased tea sales volumes and revenue growth despite economic challenges.
  • Strategic focus on quality and local market to mitigate export retention impact.

Zimbabwean agricultural company Ariston Holdings Limited (ARIS.ZW) posted its trading update for the first quarter ended December 31, 2023, citing challenging economic conditions and a mixed performance across its product lines. The company's focus on quality over quantity in tea production led to a decline in volume, while macadamia nut production is still uncertain due to market conditions. Nevertheless, the company reported increased tea sales volumes and revenue growth.

The trading update highlighted the unfavorable climate conditions in the first quarter, with below-average rainfall and extremely hot weather impacting agricultural operations. However, the weather improved later in the period, resulting in year-to-date rainfall surpassing the previous year's levels. The company emphasized the positive impact of a solar energy plant at its largest tea factory, which helped mitigate the effects of power outages and reduce costs related to generators and fuel.

source : Ariston / Equity Axis 

In terms of business performance, the company reported a 2% increase in tea production volume compared to the prior year's period, but a 20% decline compared to the previous fiscal year. This decline was attributed to a strategic decision to prioritize the quality of tea produced, aiming to meet export parameters and improve selling prices. Macadamia nut production had not yet commenced during the first quarter, but early indications showed encouraging nut set in the orchards. The market prices for macadamia nuts remained uncertain, but management focused on improving quality to leverage potential price improvements in the future.

Ariston's sales volumes for tea were 12% higher compared to the prior year's period and 20% higher than the previous fiscal year. The company aimed to protect value by channeling more tea sales into the local market due to the negative impact of the 25% Reserve Bank of Zimbabwe (RBZ) export retention on profitability. Macadamia nut sales outperformed production volumes due to the sale of stocks held at the end of the previous year, with a 415% increase in sales compared to the prior year's period. Sales volumes for poultry and other products were in line with production volumes.

source : Ariston / Equity Axis 

Financially, the company reported a 5% increase in revenue, amounting to USD 1,037,724 in the current period compared to USD 987,135 in the prior year's period. This growth was primarily driven by the sales of macadamia stocks carried over from the previous year and increased tea sales volumes.

Looking ahead, Ariston expects a lower-than-normal rainfall for the 2023/2024 agricultural season and plans to rely heavily on its irrigation systems to mitigate the impact. The demand for macadamia nuts is anticipated to remain firm, although market prices are yet to be determined. The company will continue to focus on cost containment, product quality improvement, and production processes.

Respect Gwenzi, Chief Analyst at Equity Axis, provided a balanced perspective on Ariston's outlook, stating, "The company's strategic decision to prioritize tea quality and focus on the local market to mitigate the effects of RBZ export retention shows resilience. However, the lower-than-normal rainfall and uncertain market prices for macadamia nuts pose challenges. Ariston's success in navigating these challenges will depend on its ability to effectively manage costs and leverage its irrigation systems."

(Note: This article has been written with the help of AI.)

-Equity Axis News