TSL, which runs the country’s biggest tobacco auction floors, has decided to stimulate tobacco production, which this year was half that of last year. This year’s tobacco crop was estimated at 80 million kgs, less than half last year’s 165 million kgs.
Prospects for next year’s crop were similarly poor. Though it did not stipulate how it was going to boost tobacco production, one of the methods other companies such as beer brewer, Delta, and the country’s largest cotton buyer, the Cotton Company of Zimbabwe, have been using is through contract farming. They offer farmers inputs and pay them higher producer prices than they would get from state marketing authorities.
TSL says any increase in tobacco production would boost its fortunes. Though there are three tobacco auction floors, Tobacco Sales Floor which is owned by TSL, Burley Marketing Zimbabwe and the Zimbabwe Tobacco Auction Company, TSL buys 57 percent of the crop leaving 24 percent to BMZ and 15 percent to Zitac.
Despite the reduced crop, TSL managed to realise a profit increase of more than 1 300 percent in the six months to the end of April. Sales had only increased by 229 percent from $4.4 billion to $16 billion, only $3 billion short of total sales for the year ending October 2002.
Net profit shot up from $292 million to $4.1 billion. The company says sales were below inflation because of declining volumes in agriculturally related businesses. Management of costs and a favourable interest and exchange rate, however, saw operating profit after interest charges grow by more than 760 percent from$793 million to $5.4 billion.
The company says volumes of products sold by Agricura declined because of diminished agricultural activity. Price controls and subsidies by the Tobacco Growers Trust also impacted on margins.
Tobacco sales had also got off to a slow start but the increase in the tobacco exchange rate from $159 to $800 will impact favourably on Tobacco Sales Floor’s profitability.
Bak Storage’s distribution business suffered from depressed volumes but the lifting of price controls on some of the commodities it distributes such as cement should see an improvement in volumes. Profitability in the warehousing operation was good because of good carry over tobacco stocks.
Hunyani did exceptionally well because of its export drive and strong tobacco carton demand.
Cut Rag also did well, especially on the export market. The company disposed of its shareholding in Tetrad, a financial services operation, and also changed its shareholding with an indigenous consortium, Closefin Investments, taking on 31 percent.
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