TSL Limited HY2022 analyst briefing presentation

Operating Environment

Global

• Most countries opening up – less stringent Covid-19 lockdown restrictions.
• Persistent global supply chain disruptions costly and worsened by Russia/Ukraine war. Shanghai lockdown – problematic.
• Consequent unavailability or exorbitant costs of raw materials, fertilizers and agro commodities e.g. wheat.

Local

• Remains hyperinflationary – significant price increases in fuel and other basic commodities.
• Widely reported backlogs on foreign currency auction system – both local and foreign currency cash flow strain for most businesses.

Agriculture Sector

• Erratic outturn of 2021/22 rainy season.
• Delayed rains and prolonged dry spells in some areas after crops had been planted.
• Hailstorms experienced in other areas – largest hail insurance payouts for tobacco industry in many years.
• National maize volumes forecast to be well below initial expectations.
• Tobacco marketing season commenced on 30 March 2022 – one week earlier than in prior year.
• National tobacco volumes expected to be 10% – 15% lower than previous year.
• Pricing to date firmer – significant off-taker nations replenishing inventories and lower production volumes out of South America.

Performance Overview

Financial Overview

• Directors encourage users to exercise caution in the interpretation of Group results – multiple exchange rates used in the marketplace feed into Group’s ZWL cost structure whilst Group’s foreign currency earnings translated at auction rate.
• Real increases in operating costs – owing to operating environment.
• Stringent cost containment measures continue – investment in technology, manufacturing capabilities and exploiting operational efficiencies.
• As of 30 April 2022, one month of tobacco sales recorded – marketing season peak expected in Q3.

Financial Position

• Group financial position remains solid.
• Local borrowings increased to augment internally generated cash to fund strategic initiatives.
• Interest cover remains adequate.
• Positive operating cash flows generated – reinvested in the business and used to pay dividends to shareholders.
• Group has restocked agri-inputs and hessian businesses, purchased productive assets across the group and constructed a new 4,500 sqm warehouse in Mvurwi for decentralization of tobacco contract management.
• Good support received from customer base.

Business Overview

Agriculture Operations

Tobacco Related Services

• Marketing season commenced 30 March 2022 – one week earlier than prior year.
• 6.5 mkgs of tobacco handled – 12% below prior year – general slow start of season.
• New floor opened in Mvurwi – decentralisation drive adding to Karoi and Marondera.
• Hessian volumes down 28% – slower start of season and change in merchant distribution patterns.
• Volumes expected to improve in Q3 as business enters peak of marketing season.
• New paper manufacturing line commissioned in December 2021 – aimed at reducing cost whilst maintaining quality.
• Paper volumes up 23%.

Agriculture Trading

• Satisfactory albeit depressed volumes across most product lines – erratic outturn of summer cropping season.
• Some raw materials and finished goods not available when required – global supply chain challenges.
• Restocking already commenced for ensuing season.
• Fertilisers volumes 14% up – market shortages.

Farming Operations

• Commercial maize, seed maize and soya bean yields satisfactory.
• Improved banana plantation yields – recovered from water shortages in previous season.
• Decent quality tobacco crop – firmer prices to date.
• Some of tobacco crop affected by hailstorm – fully insured.

Logistics Operations

End to End Logistics

• Mixed volumes.
• Tobacco handling volumes down 27% – slow start of season. Expected to improve as season progresses.
• Business continues to handle and facilitate movement of tobacco from decentralised floors to processors in Harare.
• General cargo volumes are 24% behind prior year, while freight clearing entries were marginally below prior year by 2%.
• Sizable increase in ports volumes – monthly trains from Maputo to Harare. Partnership with Unitrans and DP world is expected to contribute significantly as operations are scaled up.
• Forklift handling volumes up 4% – new customers signed up.

Vehicle Rental Services

• Rental days up 75% on prior year – relaxation of lockdown measures and subsequent improvement of international travel.

Real Estate Operations

Property Developments

• New 4,500 sqm warehouse facility in Mvurwi successfully completed – aids TSF decentralisation of tobacco contract management operations.
• Mvurwi facility to be expanded by another 4,500 sqm in H2 – total of 9,000 sqm.

Property Portfolio

• Existing facility in Harare deliberately kept vacant for sizeable warehousing redevelopment commencing in later part of year.
• Voids consequently up to 37%.
• Strategic initiatives being undertaken to improve operating efficiencies and enhance long-term returns

Outlook & Prospects

• Group continues to pursue its “Moving Agriculture” strategy and invest accordingly.
• Gestation period of different investment initiatives varies – impact is already evident.
• Strategic investments expected to enhance Group earnings, shareholder returns, Group’s long-term value proposition and strengthen Group balance sheet.
• Some key strategic investments undertaken in H1, have already started bearing fruit – expected to continue growing business into the future.
• Afore-mentioned difficulties in the operating environment will be managed to the extent possible to ensure continued value creation and preservation.

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TSL Limited HY 2022 analyst briefing presentation