TSL Limited

TSL Limited HY2022 analyst briefing presentation

By Published On: June 28th, 2022Categories: Corporate announcement, Earnings

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