• Wed. Jun 12th, 2024

ART volumes drop in Q1 as blackouts hit operations

ByEconomic Times

Feb 9, 2023

By ETimes

Listed manufacturing group Amalgamated Regional Trading (ART) reported a 3% decline in volumes for the first quarter ended 31 December 2022 as the power issues continued to take a toll on operations.

The government’s attempts to restrain inflation and prevent further devaluation of the local currency were a defining feature of the first quarter of the year, according to the company.

“Foreign currency transactions continued to increase across the economy despite the narrowing of the exchange rates on the official and the alternative market. The resulting liquidity constraints affected demand,” it said.

“The gains from the relative stability of exchange rates and easing of inflation in the last quarter of the 2022 financial year were reversed as electricity supply challenges worsened and seriously affected operations.”

As of the financials, revenue increased by 39% in inflation adjusted terms from the prior year. This was attributed to the increased local battery and pen sales despite the intermittent supply gaps arising from outages in power and water supplies.

Due to the inability to fill orders in December, export volumes decreased by 17%.

“Demand in Zambia remained strong despite the slowing economic growth and an upturn in inflation,” it said.

ART said reduced plant availability had an impact on profitability, notably at the mill, where under recoveries were substantial.

“Margins remain strong as costs have generally been recovered from customers. The increasing hard currency sales continue to provide a hedge to limit the impact of the foreign currency movements,” it said.

“The commercialization of the new tissue mill was affected by the unprecedented power challenges during the period with the delay necessitating additional support from lenders to ease the strain on the group.”

On a divisional level, overall battery volume decreased by 1% from the previous year, but export volume declined by 13% as a result of product shortages.

“The division was cushioned by the greater inventory holding levels which had been put in place in response to the global supply chain disruptions,” it said.

Paper volumes declined by 10% from the previous year as the recapitalization program’s anticipated efficiency gains took longer to materialize.

“The Mill continues to rely on imported waste paper as the recovery of local collections remains slow.”

At Eversharp, volumes increased by 5% from last year.

“Opportunities to meet increased local demand were lost due to delays in receiving imported raw materials in December. Export orders could not be met,” the company said.

The division that had been delayed with its retooling was finished in December.

Mutare Estates saw its timber volumes falling by 29% during the period as focus remained on sustainability.

“Value addition and seedling projects enabled the division to maintain its revenues and profitability.”

As long as policies are upheld that aim to remove distortions, stabilize the local currency, and control inflation, ART believes that the environment will remain complex and difficult.

“We remain wary of the risk posed by short term borrowings and are working to refinance these with suitable facilities,” it said.

“The elimination of local currency borrowings in December has helped to ease pressure on operations.”

It said the improved power supply will enable the optimization of the paper projects.

“The group remains resilient and will be better placed to take advantage of emerging opportunities on completion of the ongoing capital expenditure projects,” the company said.

ART noted that it will keep focusing its attention on maintaining value, controlling costs, and improving operational efficiency – Harare

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