Export growth helps ART sidestep challenges

26 Jun, 2020 - 00:06 0 Views
Export growth helps ART sidestep challenges

eBusiness Weekly

Tawanda Musarurwa
Listed diversified manufacturer, ART Corporation, recorded a 23 percent jump in export volumes in the first half to March 31, 2020, which contributed to revenue growth during the period.

The improved export performance helped the group sidestep significant macroeconomic challenges that affected most businesses in the country.

Perhaps foremost problematic among these macroeconomic factors were the issues of hyperinflation and foreign currency shortages, which clocked in at 785, 55 percent as at the end of May, 2020.

At the closing period of ART’s half year, Zimbabwe’s annual rate of inflation stood at 676, 39 percent.

“The group delivered positive results despite the power shortages, a rapidly depreciating local currency and continued foreign currency shortages,” according to chairman Dr Thomas Wushe.

ART’s revenues for the half year rose by 97 percent on an inflation adjusted basis, and 921 percent on a historical basis, which management attributed to volume increases and replacement pricing.

Export revenue for the period increased by 23 percent in United States dollar terms compared to the same period last year.

There is general consensus that local exporting firms are better positioned to thrive in an inflationary environment due to their capacity to earn hard currency.

Overall volumes for the period under review was up by 10 percent from the prior comparable period, with growth being driven by the group’s automotive and industrial batteries sections.

“The improved power supply in the second quarter enabled the group to sustain the momentum in the batteries business,” said Dr Wushe.

“The improved efficiencies following the furnace upgrade have increased capacity and created a strong platform to pursue untapped value opportunities in the industrial and solar sectors.”

In terms of divisional performance, the group’s Eversharp division saw pen sales volumes increase by 11 percent for the period compared to prior year, which management attributed to “aggressive selling effort during the back to school period”.

The division’s capacity utilisation increased by 3 percentage points to 69 percent from prior year.

The timber division’s half year sales volumes increased by 27 percent compared to the same period last year as trading partnerships improved product availability and range.

Gross profit margins increased by 2 percentage points from the prior year to 56 percent due to improved sawn timber volumes.

On the downside, ART’s paper business segment was affected by power shortages and the erratic supply of raw materials.

The segment’s volumes for the period under review decreased by 33 percent compared to the same period last year. Management said the operation increased waste paper from Botswana and South Africa during the period in order to sustain tissue production as local waste paper volumes continued to decline.

Softex tissue volumes decreased by 27 percent compared to the same period last year, although an increased focus on the manufacturing of hygiene products yielded positive results as sales volumes increased by 490 percent.

Tissue sales were, however, affected by the inconsistent supply of raw material and the adverse impact of price escalations on the supply chain, said the group.

The improved volumes and revenue performance had an impact on the company’s profitability, with earnings before interest, taxes, depreciation, and amortisation (EBITDA) increasing 10 percent to $85, 4 million on an inflation adjusted basis.

Operating profit for the period was up by 51 percent to $69, 6 million inflation-adjusted, from $46,1 million during the same period last year.

ART’s financial position also improved during the period as a result of the significant reduction of the group’s foreign currency obligations.

“The remaining legacy debt of US$459 000 was transferred to the Reserve Bank of Zimbabwe and has been recognised at the prevailing interbank market rate,” reported the chairman.

The group’s net borrowings were contained at $38 million, while its net current asset position improved to $53, 7 million from a net current liability position of $57, 7 million at the end of September 2019.

“Our efforts to preserve value by timeously adapting to the changes in the operating environment are reflected in the increased monetary gain of $69, 5 million during the period,” said Dr Wushe.

Management reported capital expenditure for the period of $24 million, which was primarily focused on addressing back-up power and furnace efficiencies.

Going forward, the group says it is cautious of the impact of the Covid-19 pandemic on its operations in the medium-to-long term, and has put in place measures to further “drive exports, contain costs and preserve cash will ensure that the business continues on its recovery trajectory.”

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