Financial Performance Highlights
- StarAfricaCorporation reported an inflation adjusted profit after tax decline of 173% to a loss of ZWL$133.5 million in its half-year ended 30 September 2022. Operating profits fell by 57% to ZWL$868.8 million while gross profits increased by 15% to ZWL$4.1 billion. According to the company, the declining profits were largely attributable to rising real prices of raw sugar and key imported manufacturing inputs – chemicals, packaging and refinery spares. Consequently, the company’s gross profit margin declined to 19% from 24%, and its operating profit margin fell to 4% from 14%.
- Revenues increased by 40% to ZWL$20.1 billion, which the group attributed to strong demand. During the period, Goldstar sugar sales volumes increased by 5% to 41,155 tonnes, however production volumes were down by 6% to 37,975 tonnes due to high plant downtime as power outages and machine breakdowns affected operations.
- The Country Choice Foods segment saw its sales volumes increase by 28% as increased plant efficiencies supported improved production. The unit also launched new products during the period – caramel popcorn and, baking and cocoa powders.
- The group’s properties business saw its rental income rise to ZWL$100.19 million from ZWL$47.8 million as post covid occupancies and collections recovered.
- Associate company Tongaat Hulett Botswana recorded a profit equivalent to ZWL$393.5 million, of which StarAfrica’s share was ZWL$131.2 million.
- The company’s operations generated cash flows of ZWL$831 million, down 8% from the 2021 comparative. Capital expenditures of ZWL$311 million were reported for the period, with the group outlining its aims to continue investing in the refurbishment and replacement of PPE to improve production efficiency – with an emphasis on improving both quality and quantity of output.
- Total assets stood at ZWL$15.4 billion, with cash holdings of ZWL$1.1 billion, trade receivables of ZWL$1.4 billion and inventories of ZWL$1.2 billion. Total liabilities were at ZWL$4.5 billion, with total borrowings of ZWL$759k and trade payables of ZWL$2.5 billion.
- No divided was declared for the period, with the company looking to maintain adequate working capital in the volatile economic environment.
- Looking ahead, the company will aim to tighten its cost management in both the refinery and specialties operations. It also urged the government to reinstate the duty on imported sugar.
Commentary and Analysis
The results paint a somewhat precarious picture for the Starafricacorporation. The company’s financial resources relatively appear thin, with an apparent need to invest in PPE whilst also maintaining a strong working capital position. The ongoing power supply challenges can be expected to sustain pressure on the company’s profit margins. Sociopolitical pressures will likely continue to limit its ability to pass cost-push inflation and plant downtime costs to consumers. This complicates the prospect of the company raising debt to manage the situation. Another complicating factor could be the company’s auditors highlighting concern about a foreign currency denominated financial instrument that was inappropriately classified as equity. This might relate to the ZAMCO assumed debt – an issue that was reportedly resolved with ZAMCO converting the debt to a stake in Starafricacorp. It could mean the company’s debt position is significantly understated, as might be the reported exchange losses of ZWL$136 million. Overall, in the absence of significant capital investment, and with the country’s power supply deficit currently expected to stretch to its 31st March financial year end – the outlook is fairly subdued for the company heading into its second half-year.
On the ZSE, the Starafricacorp share has gained 35% in nominal terms and shed 78% in implied US dollar terms. The share has a 12 month peak of ZWLc232.79 and a low of ZWLc116.62. Its value remains significantly below the USc3 target value set by ZAMCO to dispose its reported stake. The share is currently trading at a price to book ratio of 0.7x – Harare