ART records volume decline as economy hots up

Amalgamated Regional Trading (ART) registered volume declines for the half year to March 31, 2023 compared to the same period last year due to a challenging environment that eroded disposable incomes.

The macro-economic environment during the period under review was volatile and characterised by frequent policy changes. There was a significant disparity between the increase in the exchange rate and the official inflation rate. The depreciation of the local currency in the second quarter resulted in the widening of the gap between the official auction market exchange rates and the alternative market.

During the period under review, power outages also severely affected the group as the back-up generators in place do not meet the total demand of the manufacturing plants.

ART chairman, Thomas Wushe , added the prevailing high borrowing costs impacted liquidity and consumer demand.

In Zambia, the kwacha depreciated ahead of the conclusion of the country’s debt restructuring symptomatic of underlying economic issues as evidenced by the increasing trade deficit.

As a result of these challenges, overall volumes went down 9 percent. Exports were not spared neither as volumes fell by 30 percent.

“Trading and demand were impacted by the frequent price changes brought on by inflation and the local currency’s depreciation,” said Wushe.

Total revenues of $15 billion was recorded in inflation adjusted terms, an increase of 42 percent compared to the prior year.

Despite pressure from increasing operational costs, the group margins at 43 percent were high.

The paper industry’s once-off reorganisation and facility optimisation expenditures hampered profitability.

“The delay in the completion of the paper projects necessitated the restructuring of borrowings further increasing the Group’s exposure to adverse exchange rate movements,” said Wushe.

An exchange loss of $1,976 billion was recorded during the period.

The restructuring of borrowings was necessary due to the delay in the paper projects’ completion.
Overall hard currency sales grew, which enhanced the company’s capacity to fulfil its foreign currency obligations.

However, because foreign currency sales are recorded at the official auction exchange rate, this had a considerable distorting effect on the group’s profits.

According to the board, the group’s half-year revenues of US$22,2 million decreased by 8 percent from the prior year, while operating profit fell to US$1,3 million.

Due to load shedding, the Workington factory fire caused a five-week outage that impacted the batteries section. Orders for export were halted since the local market was given priority during this time.

Volumes decreased by 8 percent from the previous year.

With the help of partners, emergency measures were put in place to lessen the backlog of orders for industrial and solar batteries.

The region’s demand remained high, but Malawi’s foreign currency problems persisted.

Compared to the same time last year, paper volumes dropped by 17 percent. Although successfully commissioned, the new Tissue Mill PM2 was unable to operate entirely during that time. The spectrum of tissue products was expanded after virgin pulp underwent successful testing. As a result, the risk posed by the unpredictable wastepaper supply from the local market has been reduced.

In the second half of the year, profitability should be restored thanks to efforts to cut costs and improve efficiency.

Wushe indicated that while the bulk tissue export order book is solid, the unfavourable terms in the local market’s formal retail sector continue to have an influence on tissue sales.

Due to power shortages and delays in the supply chain for raw materials, the volume of Eversharp pens declined by 7 percent from the previous year.

The group is upbeat that after retooling, the division should avoid problems with product supply in the second half.

Given the pricing irregularities that characterised the market, timber sales volumes decreased by 26 percent from the previous year as the company chose to protect value.

The division introduced its line of industrial pallets and ended the quarter with a solid backlog of orders. The purchase of a grader and other fire apparatus has improved readiness for the dry season.

Management anticipates the environment to remain challenging in the second half of the year and will continue to exercise caution in its growth initiatives and ensure value preservation.

“The strides taken to reduce expensive short-term debt and sustain working capital in the first half of the year will be consolidated,” said Wushe.-ebusinessweekly