TSL Limited is banking on the foreign currency auction system to provide elusive foreign currency for restocking and capital investments as the company moves to shake off disruptions caused by the Covid-19 pandemic and drought.
The Reserve Bank of Zimbabwe reintroduced a foreign currency auction system in June 2020 in response to the persistent foreign currency shortages and the volatile exchange rate, a move which has brought stability in the exchange rate and improves the availability of foreign currency for companies. Since its introduction, the auction system has seen a movement in the exchange rate from a fixed 1:25 to the US Dollar to 1:73.8 as of July 31 2020.
During the trading update for the third quarter ended July 31 2020, TSL company secretary James Muchando said the company was upbeat on the auction system.
“With the introduction of the foreign currency auction system, the availability of foreign currency for restocking and capital investments is expected to continue to improve. A more stable exchange rate will minimise business disruptions,” Muchando said.
“The group will continue to implement its “moving agriculture” strategy. Foreign currency generation, building resilience and value preservation remain key priorities.”
Tobacco industry expectations were that national tobacco volumes would have been between 10% and 15% lower than the 258m kg achieved in prior year.
As at July 31 2020, national tobacco output stood at 182m kg.
Muchando said prices have been firmer this year.
Despite the decentralisation of contract floors being announced at the onset of the tobacco marketing season, independent auction floors have yet to secure the requisite approvals for decentralisation.
Muchando said the preservation of shareholder value is a key priority and the group’s financial position has been strengthened.
Gearing remained low at under 5%. Cash generation remains satisfactory with most of group working capital requirements being funded from internally generated resources, he said.
The group was profitable during the quarter despite generally depressed volumes. Independent auction volumes at Tobacco Sales Floor at 5.7 m kg were 73% below prior year owing to the smaller tobacco crop, the late start to the tobacco season and auction floors not receiving the requisite approvals to decentralise, Muchando said.
Contracted volumes handled for tobacco merchants at 7.9m kg were 45% below the same period last year.
Muchando said work was being undertaken with industry players to ensure a smoother tobacco marketing season in 2021.
Volumes at Propak Hessian were down 21% due to the late start of the tobacco selling season and the decline in national tobacco crop.
Muchando said Agricura has seen growth in market share and volumes across most product lines, largely attributable to product availability and more attractive pricing on locally manufactured products.
Manufacturing and restocking for the coming summer season are underway. In the farming operations, tobacco yields were satisfactory.
Approximately two thirds of the crop had been sold and pricing was marginally lower than in prior year.
He said the winter wheat programme was scaled back and water rationing was undertaken on the banana plantation due to low dam water levels.
TSL has opted not to sell the harvested maize and soya bean in the current period, Muchando said.
The distribution division recorded significant growth in volumes as new customers were secured.
Volumes in the ports business decreased by 37% due to slower movement of both imports and exports owing to restrictions imposed to contain the spread of the Covid-19 pandemic.
Handling volumes at Premier Forklifts were 18% below prior year due to the delayed start of tobacco processing.
Volumes in the freight forwarding and customs clearing business were depressed as imports by the customer base remains subdued.
Avis’ rental days were 39% below prior year as the business was significantly affected by the ban on both local and international travel.