• Tea production declined by 8.96% from 5,582 tonnes to 5,082 tonnes
• However, Tanganda was able to maintain profitability through cost optimization, reducing other expenses by 30% and distributionand selling expenses by 4%
• However, cost optimisation, new foreign markets anchored PAT at US$1.97 million

Harare- Tanganda Tea Company, the leading diversified tea enterprise listed on the Zimbabwe Stock Exchange, has maintained profitability in the 1HY ended 31 March 2024 despite facing depressed performance across key metrics, including revenue, export sales, local sales, operating profit, and tea production.

Tthe company has successfully leveraged strategic cost-optimization initiatives to ensure profitability.

Tea production was impacted by the late onset and uneven distribution of rainfall, resulting in an 8.96% decline in bulk tea production to 5,082 tonnes, down from 5,582 tonnes during the comparative 2023 half-year period. 

As a result, revenue decreased by 6% to US$11.1 million, exports by 7,67% to US$5.33 million, local sales by 4.34% to US$5.77 million leading to operating profit decreasing by 37% to US$2.6 million.

However, through the implementation of innovative cost-optimiSation strategies, the company has been able to mitigate the impact of these external pressures, preserving its profitability and strengthening its market position. 

The cultivation of tea is a delicate and nuanced agricultural process that requires a precise balance of environmental factors to achieve optimal growth and yield outcomes. Tea production is heavily dependent on the availability of adequate and well-timed precipitation, as well as the implementation of efficient irrigation systems to supplement any deficiencies in natural rainfall patterns.

However, the utiliSation of irrigation technologies has presented certain challenges from a sustainability perspective. The traditional methods of powering irrigation pumps, such as the employment of diesel generators, have proven to be economically and environmentally unsustainable in the long term.

In response to these challenges, the company has adopted a proactive and forward-thinking approach to ensuring the ongoing viability of its tea production operations. As reported in early March, the company has secured a reliable and renewable energy supply to power its irrigation systems, a strategic move intended to offset the inherent unpredictability of rainfall distribution in the region.

Tanganda has made significant investments in green energy infrastructure, evidenced by the installation of three independent, battery-supported solar energy plants across three of its five tea estates. These solar energy systems boast a combined production capacity of 4.4 megawatts.

These solar energy systems have a combined production capacity of 4.4 megawatts, with the Ratelshoek estate contributing 1.8 MW, the Jersey estate contributing 1.4 MW, and the Tingamira estate contributing 1.2 MW.

Tanganda has made significant financial investments in these efforts, allocating US$4 million towards irrigation upgrades over the past three years, while also investing an average of US$8 million in solar energy production. With these new irrigation schemes now ready for reintroduction, the company is poised for sustained production growth going forward.

During the period under review, there was also a decline in tea exports, with a 12% decrease in bulk tea exports from 3415 tonnes to 3005 tonnes in the comparative period. This reduction in output has also led to a decline in the average export selling price, which fell from US$1.45 per kilogram to US$1.38 per kilogram.

In response to these challenges, Tanganda has adopted a turnaround strategy that involves diversifying its export markets. The company has ventured into the Democratic Republic of the Congo (DRC) as a new export destination during the period, and is also exploring opportunities to expand its footprint in the Chinese market. These efforts aim to leverage new markets and mitigate the impact of declining prices in traditional export destinations, such as Peru and Mexico.

In line with the overall production trends, Tanganda Tea Company's packed tea sales volumes further declined by 33%, dropping from 929 tonnes in the prior year to 625 tonnes in the current period. This reduction in domestic packed tea sales was, however, mitigated by a 78% increase in packed tea exports, driven by the opening of a new export market in the DRC.

Despite the downward performance in production and sales volumes, the company was able to maintain profitability at a higher level than the previous half-year. Tanganda's profitability stood at US$1.97 million, up from US$1.57 million in the prior period.

This resilient financial performance can be attributed to Tanganda's cost optimization initiatives and a reduction in finance costs. The company's strategic focus on streamlining operations and managing its financial obligations has enabled it to weather the challenges posed by the decline in production and sales volumes.

Despite a 32% increase in cost of sales, from $5.7 million to $7.5 million, the company was able to decrease other expenses by 30%, from $2.3 million to $1.2 million. Additionally, distribution and selling expenses were reduced by 4% to $1.87 million.

The company also made significant strides in reducing its finance costs, which declined by 56% from $686,646 to $299,000. This substantial reduction in financing costs was a major contributing factor to the company's improved profitability.

Anchoring Tanganda's profitability were also the exports of avocado and macadamia nuts. Macadamia nut prices firmed by 20% in the Chinese market, while coffee exports increased by 32%, from 44 tonnes to 58 tonnes. The average selling price of coffee also improved, rising from $5.03 per kg to $6.24 per kg.

The combination of cost optimization strategies, reduced financing costs, and the strong performance of diversified product exports allowed Tanganda to offset the challenges faced in its core tea business, where production and prices were under pressure. As a result, the company's Profit Before Tax (PBT) increased from $1.7 million to $2.3 million.

By implementing a multi-pronged approach focused on cost management, financing optimisation, and product diversification, the company has positioned itself on the right path, with better production expected in the second half of the year.

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