• Fri. Apr 19th, 2024

ANALYSIS| Tanganda Tea Company Cites Climate Change After Posting ZWL$17bln Loss in FY23

ByETimes

Feb 1, 2024 #Tanganda Tea

By ETimes

Financial Performance Highlights

  • ZSE listed agricultural concern Tanganda Tea Company reported an inflation adjusted ZWL$17.1 billion after tax loss for its financial year ended 30 September 2023 while gross profits increased by 15% to ZWL34.7 billion.
  • Addressing the performance, the Company highlighted issues such as erratic power supply leading to higher production costs and climatic conditions characterised by high temperatures, hailstorms and unpredictable rainfall leading to lower yields.
  •  Total revenue increased by 42% to ZWL$129 billion, with local sales increasing by 36% to ZWL$59.4 billion and export sales increasing by 48% to ZWL$69.6 billion.
  •  Packed tea continued to be the largest earner, with sales increasing by 43% to ZWL$61.6 billion and the proportion of USD local sales rising to 70% from 2%.  Sales volumes declined by 6% to 1,873 tonnes which was attributed to global supply challenges that limited the availability of key inputs.
  •   Bulk tea sales increased by 58% to ZWL$44.4 billion despite volumes declining by 9% to 7,894 tonnes as environmental factors weighed on production. Exports fell by 12% to 6,238 tonnes, while the average export selling price increased marginally to US$1.44/kg from US$1.42/kg.
  • Macadamia sales had the sharpest growth, rising by 94% to ZWL$15.2 billion. Export sales volumes increased from 650 tonnes to 1,551. However, the change in consumer presume preference to kernel from nut-in-shell led to a decline in average selling price from US$3.26/kg to US$1.93/kg.
  •   Revenue from avocado sales declined by 55% to ZWL$2.8 billion as low yields saw export volumes fall by 50% to 2,148 tonnes, although export prices remained firm at USc44/kg. During the year the Company expanded its avocado hectarage by 45 ha to a total of 541 ha.
  •  The Company’s operations generated a cash flow surplus of ZWL$2.7 billion, ZWL$8.4 billion was spent on capital expenditures and financing activities raised ZWL$3 billion which left a net cash flow deficit of ZWL$2.7 billion.
  •   Total assets stood at ZWL$175 billion, with cash holdings of ZWL$832 million, inventories of ZWL$32 billion and receivables of ZWL$23 billion. Total liabilities reached ZWL$55.2 billion, with borrowings of ZWL$14 billion and payables of ZWL$24 billion.
  • Looking ahead the Company sounded bullish, noting that it did not expect the El Nino drought to affect yields due to its prior investments in irrigation and dam infrastructure. Additionally, it expects yields to improve as the plantations mature. It also outlined plans to invest in value addition initiatives in the macadamia and packed tea operations, and highlighted a strategic focus on cost containment and efficiency.
  •  The board elected against declaring a dividend.

Commentary and Analysis

The main take here is that Tanganda’s performance was weighed down by rising production and operating costs and lower than expected yields – as indicated by the decline in the gross profit margin and rise in the operating expenses to revenue ratio. The reduced profitability required the Company to finance its capex partially through debt and internal resources. The issue is that the Company now has a relatively weak working capital position, and a higher debt load. Given the increasingly unpredictable weather, low levels of internal resources present a significant risk. The upside is the export focus of the group’s operations, although increased dollarization is likely to the profit margins are likely to remain under pressure. There are also expectations that dynamics in the global macadamia market will be more favorable in 2024. The hope will be that the tea yields recover, the Company’s internal capacity stabilizes and it avoids falling into a debt trap. Looking long-term there is a definite need to diversify the group’s operations away from primary production, ideally still focusing on export-oriented health products.

On the ZSE, in the last twelve months the Tanganda Tea Company share has gained 1735% in nominal terms and 47% in USD implied terms. The share is currently trading at a Price to Book ratio of 3.41x.

By ETimes

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