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ART Corporation banks on ongoing restructuring

Business Reporter

Amalgamated Regional Trading (ART) Corporation says ongoing restructuring will enhance group performance and agility in swiftly responding to opportunities across business units.

Group chairman, Dr Thomas Utete Wushe said in a statement of financials for the year ending September 30, 2024, that the company could deliver the expected financial performance for the year due to the ongoing transformation of the business.

He said the changes were severely impacted by unfavourable dynamics in the economic environment.

“The bold and defensive decisions taken to scale back investment in the paper segment during the year resulted in significant losses in the paper divisions after taking into account one-off restructuring costs and under-recoveries.

“The energy storage, timber, and stationery businesses delivered resilient performances as they remain foundationally strong, but power shortages during the period exacerbated product availability challenges in the peak season,” Mr Wushe said.

He said group revenue for the year decreased by 11 percent to US$33,321 million from the prior year’s US$38,227 million due to product availability challenges and the deliberate scaling down of paper production. The group’s export volumes declined by 15 percent compared to the prior year. 

“The foreign currency shortages in the region continued, resulting in significant payment delays in Zambia and Malawi,” said Mr Wushe.

The group’s gross profit margins for the year at 44 percent improved by 2 percentage points, benefiting from the change in sales mix with the slowdown of the low-margin paper volumes.

Dr Wushe said operating expenses increased as currency movements drove service providers to move to hard currency and hedge against further value loss.

“The group was relentless in its drive to fix, strengthen, and reposition the business,” he said.

Dr Wushe said overall short-term bank debt was reduced substantially as proceeds from property disposals were applied towards loan repayments.

In terms of divisional performance, overall battery volume in the Energy Storage unit declined by 8 percent from the prior year with the business facing tough economic conditions, power, and supply chain disruptions.

Dr Wushe said demand in the market remained high despite increased competition from imports, and technology will continue to impact customer preferences in the segment.

“The business broadened its investment in new technologies with the launch of the maintenance-free batteries.

“Battery clinics were increased throughout the country to educate consumers who have inadvertently been purchasing counterfeit batteries and low-cost imported batteries without after-market support,” he said. He added that industrial battery volume increased by 16 percent on the back of increased demand from mining, energy, and telecommunication sectors.

During the period under review, the stationery division volumes were affected by power-induced product shortages, disruptions in the formal market, and currency instability. 

As a result, volumes decreased by 10 percent from the prior year. 

Dr Wushe said the proliferation of low-cost imported pens, during the peak back-to-school periods, was aided by product shortages.

He indicated that the new Eversharp pens performed well in the first year, contributing 10 percent of total revenue.

“The listing of the Eversharp pens in the Zambia formal retail market during the period is expected to boost exports once product shortages are alleviated.

“The Eversharp brand has retained its position in the market with raw material supply and quality challenges having been resolved during the year.

“The Clean Schools campaign and National Heads programme were sponsored, affirming Eversharp’s continued support and role in the education sector,” said Dr Wushe.

In the paper division, Dr Wushe said the scaling back of production during the period to allow for optimisation of the new equipment and restructuring of the division had to be extended to the end of the year as it became apparent that the worsening power supply situation and unfavourable market conditions would persist into 2025.

He said this had come with significant difficulties and trade-off decisions given the limited cash resources available.

“Paper milling in the country faces significant obstacles related to raw material supply, the cost and availability of power, and water. The disruption that technology and advancements in paper making present will continue to challenge our capabilities.

“The group, however, remains confident that its experience and investments will, in the long term, withstand and overcome these challenges,” he said.

Dr Wushe said the company had identified partners to enhance capabilities and technologies to support the group’s innovation pipeline and talent base.

He said tissue converting and trading under the new partnerships commenced in the last quarter with volumes expected to recover on the back of improved product availability.

 The group’s Mutare Estates sales volumes were above the prior year by 3 percent, with demand for structural sawn timber increasing as the year ended.

“Gum volumes orders could not be fulfilled due to extraction bottlenecks. Gross margins increased to 54 percent from 46 percent due to an improvement in recovery rates and blended harvesting around the plantation. Pallet sales were slowed by customer payment delays,” said Dr Wushe.

Dr Wushe noted that the estates suffered minimal fire losses as a result of a highly prepared and motivated fire-fighting team. 

He said the business continues to face disruptions from the illegal mining activity around Inodzi Estate and will continue to engage law enforcement authorities to ensure the estate is safeguarded.

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