eBusiness Weekly
Tapiwanashe Mangwiro
Listed manufacturing group, Amalgamated Regional Trading (ART), announced a $1,5 billion inflation adjusted after tax profit for its financial year ended September 30, 2022.
Upward fair value adjustments to investment properties of $1,6 billion and biological assets of $3,3 billion contributed significantly to the upturn in the group’s financial performance.
“The fragility of the paper division under the current difficult economic conditions, was evident during the period as the unit struggled to maintain volumes and profitability,” said group chairman, Thomas Wushe, in a statement accompanying the company’s financial results.
“Future proofing the group by diversifying and consolidating the paper units, has been challenging and significant support from the group’s funders was required to enable the completion of the Paper Mill project in Kadoma.”
Like any other business, ART has benefited from the rise in US dollar transactions on the market. This comes as customers are preferring to settle their transactions using the greenback against the local currency.
The increase in foreign currency sales in all the business units helped to sustain raw materials imports,” he said.
“The business also benefited from the growing informal sector which has better payment terms.”
In the period, the group’s inflation adjusted revenue rose 3 percent to $19,6 billion as prices were adjusted in line with inflation.
Volumes, a key indicator of demand, were up 10 percent.
Export volumes increased by 12 percent compared to the prior year, driven by strong demand in Zambia.
“The group’s regional drive continues to be anchored by the strong performance of batteries in Zambia and Malawi,” he said.
“Foreign currency shortages persisted in Malawi whilst growth in Mozambique remains slow as competition from imported batteries increased.”
On the strength of timely price adjustments and cost reductions, margins improved during the period.
“Demand for batteries, paper and stationery recovered although significant downtime in the tissue business due to machine breakdowns and power cuts affected production output consequently impacting sales particularly on the export market,” he said.
ART has generally struggled for consistency in recent years with the group’s profit margins declining noticeably in the last two financial years after a sharp increase in the preceding two years.
Increased scrutiny on product pricing in formal distribution channels has likely played a key role in the decline and it could also reflect increased price competition from cheap imports as access to forex in informal markets has improved.
The revenue share of the group’s batteries segment has also become more pronounced in the last five years, with volumes increasing by 167 percent. Operating profit margins in the segment have been fairly volatile during the period, currently at 12 percent for the just ended financial year, it has ranged between 1 percent (2021) and 60 percent (2019).
Notwithstanding the volatile operating environment, the inconsistency suggests there may be some structural inefficiencies within the segment.
Going forward, the ongoing power supply challenges will likely have an adverse effect on the group’s production capacity and efficiency in the first half of the 2023 financial year. The group did not appear to invest significantly in working capital, which could be a concern as the local macroeconomic outlook remains uncertain.
