REVIEW OF THE ECONOMIC ENVIRONMENT

The global COVID-19 pandemic continued throughout the year and is ongoing. As new variants of the virus manifested, national lockdown restrictions were implemented, albeit at less stringent levels. National vaccination programmes have been encouraged and enforced. Global supply chain disruptions have persisted, adding significant delays and costs to business operations.

The operating environment was difficult. Inflation remained relatively stable in the earlier part of the year. Interest rates on local currency borrowings were unsustainably high.

Reported backlogs in foreign currency settlement on the interbank auction system resulted in a widening disparity between the official exchange rate and the rates obtaining in the marketplace, spurred divergent multiple exchange rates and pricing mechanisms in the business environment.

The country witnessed an above-average rainy season in the trading period, which benefited production of key strategic crops such as maize and soya bean. The filling of most dams across the country also led to a successful winter cropping season. National tobacco volumes closed at 211 mkgs, a 14% increase on prior year crop whilst national average price was US$2.79/kg, 12% ahead of prior year.

PERFORMANCE OVERVIEW

The Group achieved good volume growth across most business units. Inflation adjusted revenue for the year is up 13% on prior year attributable to improved performance by the agriculture-based business units. A significant portion of Group revenue was generated in foreign currency which is converted and reported in ZWL using the official exchange rate. Multiple exchange rates were used by local suppliers to price products and services resulting in an increase in operating expenses by 17%. Operating profit was down 9% as a result of increased margin pressure and additional costs attributable to global supply chain disruptions. Interest rates were high at an average of 45% for the year. However, Group borrowings remained low.

The Group’s financial position remains firm with the focus on shareholder value creation and preservation. Most working capital requirements were funded from internally generated cash resources. Positive cash flows generated were applied towards funding the operations, paying dividends to shareholders and acquisition of productive assets in the year.

Property valuations
The Directors have elected to use the actual US$ rental yield achieved in the year of 8.6% (up from 7.8% in prior year) to determine the ZWL value of the underlying property portfolio as explained in Note 13. The US$ value of the Group properties has marginally declined from last year.

Note to users of financial statements
The Group’s consolidated inflation adjusted financial statements have not in all material respects been prepared in compliance with the requirements of IAS 21 ‘The Effects of Changes in Foreign Exchange Rates’ in prior years. Consequently the current year financial statements include residual effects of these prior year misstatements. The Board, therefore, advises users to exercise caution in the interpretation of these financial statements.

The Group aims to create sustainable economic value by pursuing a long-term approach to environmental stewardship, social responsibility and corporate governance.

AGRICULTURAL OPERATIONS

Tobacco-related services
Tobacco Sales Floor handled 24.3 mkg of tobacco in the year against 15 mkg in prior year, a 62% increase. Of this volume, 60% was on behalf of tobacco contractors in Harare and the new decentralised floors in Karoi and Marondera in line with the Group’s strategic thrust. TSF continued to hold the largest market share in the independent auction segment (78%) and achieved the highest seasonal average price (US$2.86).

Propak Hessian volumes were 15% ahead of prior year on the back of a 26% increase on volumes from tobacco merchants and a 36% volume decline in the independent auction segment. Foreign currency for importation of hessian was available from both customers and the foreign currency auction system. The business invested in and installed a paper packaging manufacturing line which will allow for competitively-priced, locally-produced paper packaging to be supplied both locally and into the region. This strategic move is in line with the Group’s sustainability drive.

Agricultural trading
Agricura achieved strong volume growth across most product lines due to increased market share, stock availability and attractive pricing particularly on locally manufactured products. However, supply chain disruptions from source markets affected product availability for some product lines resulting in sourcing of raw materials and stock from the region at higher prices, which suppressed margins. The business unit commenced exports into Botswana in the year.

Farming Operations
The prior year drought adversely affected yields for tobacco, banana and chillies as water had to be rationed due to low dam levels. However, the above-normal 2020/2021 rainfall season resulted in good yields for maize, wheat, and soya bean crops.

LOGISTICS OPERATIONS

End to end logistics services
Bak Logistics recorded volume growth in distribution (48%), ports (51%), transport (20%) and tobacco handling (2%). This growth was attributable to new clients being signed up and the commencement of transport services from decentralised tobacco floors. Storage and handling volumes in FMCG and general cargo were 75% and 24% below comparative period respectively, due to global supply chain disruptions which resulted in product being moved directly to consumers.

Margins came under pressure as global supply chain challenges resulted in higher costs. New business lines were recorded in the freight forwarding division with satisfactory volumes. Handling volumes at Premier Forklifts improved by 5% while forklift sales remained at par with prior year.

The logistics business responded positively to the ongoing initiatives to recover market share through competitive pricing and optimisation of capacity.

In partnership with international logistics players, Unitrans and DP World, and working with the NRZ, a rail service was commenced from Maputo to Harare. Eight trains had been moved in the period to year-end and this is expected to increase and improve consistency into the future.

Vehicle rental
Avis’ rental days were up 69% due to less stringent lockdown restrictions and commencement of international travel when compared with prior year. The unit acquired the Budget franchise during the year and rebranded to AvisBudget Group Zimbabwe.

Real Estate Operations
Occupancies remained satisfactory and void levels decreased compared to prior year. The business successfully completed the construction of a world class, 10,000 square metre warehouse in Harare, which was occupied in May 2021. This is part of the Group’s strategic initiatives to create fit-for-purpose, modern infrastructure that facilitates the movement of agriculture. The property portfolio was valued in US$ by Dawn Property Consultants and converted to ZWL$ using the rental yield achieved as per Note 13.

Commodities Exchange
The Group partnered with Financial Securities Exchange (Finsec), CBZ Holdings Limited and the Government of Zimbabwe in launching the Zimbabwe Merchantile Exchange (ZMX) on 18 August 2021. The launch of the commodities exchange was made possible by the support the Ministry of Finance and Economic Development, Zimbabwe’s Ministry of Lands, Agriculture, Fisheries, Water and Rural Resettlement, and International Development Agencies, namely the World Bank and Food and Agricultural Organization (FAO). ZMX brings an orderly, digitalized marketplace platform for trading and funding of agricultural commodities. 18 agricultural commodities have been approved for trading in the maiden year. Operations of this entity are still in their infancy and expected to scale up in the coming year.

Sustainability
The Group aims to create sustainable economic value by pursuing a long-term approach to environmental stewardship, social responsibility and corporate governance. The impact of the COVID-19 Global pandemic in previous years cast a greater focus on how the Group embedded sustainability practices in all its businesses.

OUTLOOK

The Group continues to pursue its “moving agriculture” strategy in a difficult operating environment and to invest accordingly to create and preserve shareholder value. The Group continues to explore strategic partnerships both locally and regionally to enhance its market presence. The availability of foreign currency and appropriately priced financing will assist in taking advantage of the existing growth opportunities.

The Group received approval from the Reserve Bank of Zimbabwe to buy out a minority shareholder in Agricor (Private) Limited, which will result in the Group wholly owning the business on conclusion. The transaction is expected to be completed before the end of 2022 financial year.

Ongoing plans to expand and improve the Group’s infrastructure are underway with construction anticipated to commence at one of the Group’s strategically located warehouses. This construction of an additional 9,000 square meters of warehousing is anticipated to kickstart in the 2022 financial year.

The effects of the global COVID-19 pandemic, particularly on global supply chains are expected to continue and require ongoing management. Nonetheless, the Zimbabwean economy is projected to recover as the impact of the pandemic declines in response to mitigatory measures and as the world adapts to living with the virus.

DIVIDEND

At their meeting held on 27 October 2021, the Directors declared a second interim dividend of ZWL17 cents per share which was paid in November 2021 in respect of all the ordinary shares. This brings the total dividend declared for the financial year ended 31 October 2021 to ZWL45 cents per share.

For and on behalf of the Board

A. S. Mandiwanza

(Chairman)
26 January 2022

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TSL Limited Integrated Annual Report 2021.pdf