eBusiness Weekly
Nelson Gahadza
TSL Limited says it will commit US$3 million towards capital expenditure in the second half of the year as the group pursues its moving agriculture strategy.
The group whose interests span across sectors, including real estate, agriculture, logistics, and services , is exploring strategic partnerships both locally and regionally to enhance its market presence.
Derek Odoteye, group chief executive officer during a virtual analyst briefing for financials for the interim period to June 28, 2022, said the company will continue to invest accordingly in the various spheres of its business. “Capital expenditure budget for the second half of 2022 will be US$3 million.
These strategic investments are expected to enhance group earnings, shareholder returns, and the Group’s long-term value proposition and strengthen the Group’s balance sheet,” he said.
He said that the gestation period of the different initiatives varies; however, the impact of the investments is evident.
“Investment in some key strategic initiatives undertaken in the first half of the year have already started bearing fruit and are expected to continue growing the business into the future,” Odoteye said.
He noted that during the period under review, the operating environment remained hyperinflationary with significant increases in the price of fuel and other basic commodities.
The widely reported backlogs on the foreign currency auction system have resulted in cash flow strain for both foreign and local currency for most businesses.
Odoteye said that the persistent global supply chain disruptions and attendant costs were worsened during the period by the Russia/ Ukraine war resulting in the unavailability, or where available, exorbitant costs of raw materials, fertilisers, and some agricultural commodities such as wheat.
He noted that the outturn of the 2021/22 rainy season was erratic with some areas experiencing delayed rains and prolonged dry spells after crops had been planted, whileother areas experienced hailstorms resulting in the largest hail insurance payouts for the tobacco industry in many years.
The Group whose operations are mainly tobacco related, noted that the tobacco marketing season commenced on March 30, 2022, and after a month of sales, indications are that national tobacco volumes will be between 10 percent – 15 percent lower than the initial forecasts and the 211 million kgs purchased in the previous year.
The company said that pricing of the tobacco crop to date, has been firmer than in prior year as significant off-taker nations replenish their inventories and production volumes from South America are lower than anticipated.
“The aforementioned difficulties in the operating environment will be managed to the extent possible to ensure continued value creation and preservation,” said Odoteye.
Patience Shiri, the company’s chief financial officer, said revenue at $3 billion is five percent above prior year and inflation adjusted profit before tax for the period is five percent below the comparative period.
She said the impact of the real increases in operating costs owing to the operating environment cannot be ignored, however, the Group continues to take stringent measures to contain costs through investment in technology, manufacturing and exploiting operational efficiencies.
“As of April 30, 2022, the tobacco marketing season has run for one month, and the peak of the season is expected in the Group’s third quarter,” she said.
She highlighted that the Group’s financial position remain solid and local borrowings have been increased during the period to fund strategic initiatives. Shiri said that positive cash flows were generated from operations in the period and reinvested in the business and used to pay dividends to shareholders.
“The Group, supported by its customer base, has been able to restock agricultural chemicals at Agricura and hessian wraps at Propak, purchase productive assets across the business units and construct a new 9,000 square metre warehouse in Mvurwi for expanding the tobacco contract management business in line with the Group’s decentralisation drive,” she said.
In terms of volume overview, on the tobacco related services, Odoteye said TSF handled 6.5 million kgs in the period 12 percent below the comparative period due to a general slow start of the season.
He said TSF opened a new floor in Mvurwi to handle tobacco for contractors, adding to the business’ existing decentralised operations in Marondera and Karoi. Propak’s hessian volumes were 28 percent below prior year due to the slow start of the tobacco marketing season coupled with tobacco merchants adjusting the timing of the distribution of hessian to their farmers.
“Volumes are expected to improve in the third quarter as the tobacco season enters its peak period.
The business invested in a new tobacco paper manufacturing line which was commissioned in December 2021.
“This move was taken to reduce the cost of tobacco paper for the market whilst retaining the quality,” said Odoteye.
He noted that the uptake of tobacco paper by the market has been pleasing with volumes 23 percent above prior year.
Odoteye said that volumes at Agricura across most product lines have been satisfactory, albeit depressed, given the erratic outturn of the summer cropping season.
He said the business was negatively impacted by the extended global supply chain challenges, which resulted in some raw materials and imported finished products not being available when required.
“Restocking for the ensuing season has therefore already commenced. Fertiliser volumes were, however, 14 percent above prior year due to product shortages in the market,” he said.
He noted that commercial maize, seed maize and soya bean yields are expected to be satisfactory. Banana plantation yields have improved during the period, having fully recovered from the impact of water shortages in the previous season.
Volumes in the Logistics business have been mixed with Tobacco handling volumes 27 percent behind prior year due to a slow start to the tobacco season but are expected to improve as the tobacco marketing season progresses.
Odoteye said that BAK Logistics continues to handle and facilitate the movement of tobacco from decentralised tobacco floors to processors in Harare.
General cargo volumes and freight clearing entries were 24 percent and two percent below prior year, respectively.
“There has been a sizable increase in volumes handled through the Ports division owing to the satisfactory progress being made in running a monthly train from Maputo to Harare through Bak Logistics partnership with Unitrans and DP World.
“This area is expected to contribute significantly to the business as the rail operations are scaled up,” he said.
He noted that Premier Forklift division recorded a four percent volume growth from new customers that have been signed up.
Odoteye said that Avis’ rental days are 75 percent ahead of the comparative period due to the relaxation of lockdown measures and subsequent improvement of international travel.
He said that the business successfully completed the construction of a new 4,500 square metre warehouse facility in Mvurwi to aid TSF in expanding its decentralized tobacco contract management operations.
“This will be expanded by another 4,500 square metre warehouse in the second half of the year,” he said.
He noted that the Company has also deliberately kept an existing facility in Harare vacant, in preparation for construction of a sizable warehousing development in the later part of the year.
“Voids have consequently temporarily increased to 37 percent.” Odoteye said that these strategic investments are being undertaken to improve operating efficiencies and enhance long-term returns.
