INDUSTRIAL conglomerate, Art Holdings, has posted a satisfactory set of half-year results which indicate that its battle to extricate its balance sheet f
rom a huge foreign currency burden was almost being won.
But a resolution by the group earlier this year for strategic acquisitions, which won the backing of shareholders, could fail after management declared it would use its cash resources for the retooling of factories.
The group’s balance sheet indicates a significant re-organisation of its foreign currency exposure. A net US-dollar exposure amounting to $2,4 million during the six months of last year has been reduced to $300 000 million during the six months to March 31. Offshore loans were reduced from US$1,2 million during the comparable period last year to just US$600 000 during the six months under review.
The group, which last year turned a debt-encumbered first half, in which it battled high finance costs, into a debt-free year-end in which it posted net interest income on a monthly basis from positive cash balances on deposits, had remained stuck with a foreign currency-denominated debt.
As a result, the progressive loss of ground by the Zimbabwe dollar against major currencies had become a stain on its balance sheet because of significant exchange losses on its operating exposure position.
However, during the interim six-month period to March 31, Art had gone back to the market to take out borrowings to finance the withdrawal of foreign credit, with a balance of $32 billion outstanding by the end of March.
During the six-month period to March 31, the group’s net profit went up 1 600% to $318 billion, pushing earnings per share up 1 600% during the period under review.
Revenue increased 1 000% to $42,5 trillion, from $227 billion during the same period last year.
The group warned that trading conditions remained unfavourable, with disposable income, which had pushed sales volumes down 30% during the six months, likely to continue affecting operations.
“Additionally, interest rates remain unaffordable to the productive sector and the mismatch between the exchange rate and inflation levels remains a threat to export viability,” the board said in a statement accompanying the financial results. But the board did not, however, give any hint of any planned take-over, despite winning a resolution to proceed with any strategic acquisitions during the year.
However, the group’s board, which did not declare a dividend in order to conserve cash for retooling expenditure, said it would use available cash resources, including that forecast to be generated during the second half, in the retooling of factories.
Art, involved in paper manufacturing, paper converting and distribution, pen manufacturing and lead-acid battery manufacturing and distribution, earlier this year sought a resolution from shareholders to add 40 million or 13% of its authorised share capital to its abundant
cash resources for strategic acquisitions.
Art said in a notice before its annual general meeting that the company would use the authority granted by the AGM to “make a contract or contracts to issue ordinary shares”.
Analysts said the shares were likely to be issued as a cash consideration in any planned acquisition.
The group has a near-monopoly in the manufacture of newsprint in the country. The paper manufacturing and converting and stationery divisions form the core of Art’s business operations, while the battery manufacturing and retail division is non-core.
“We believe the instability in the Zimbabwean economy presents opportunities for growth through alliances, equipment purchase from existing competitors and outright business acquisitions where these fit in with our strategy. We will use our balance sheet strength and cash position to seek out such opportunities,” Richard Zirobwa, Art’s CEO, said in his report to shareholders.