LISTED diversified group ART Corporation (ART) investors are mulling the expansion of their business portfolio to include manufacturing of industrial products, businessdigest has learnt.
This is after completion of plant refurbishments and capital injection to the tune of US$18 million.
ART operates a paper mill, a waste collection company and units that produce stationery and automobile batteries among other products.
Currently, Zimbabwe needs to manufacture industrial supplies locally to drive the economy, Taesung Chemical Co (Taesung) chairman Young Baik said in an interview this week in Harare.
Taesung is a Korean company and the single largest shareholder in ART, accounting for 33, 86% shareholding in the company through two wholly owned vehicles- Cranbal Investments Pvt Ltd and Silvermine Investments.
“ART must go for industrial production, which is good for the nation,” said Baik.
“For example, we have a single company doing transmission cables and government is importing such critical supplies from overseas when they can be manufactured locally. We are also looking at investing into production of agricultural equipment especially irrigation equipment and supplies” added Baik.
Currently, Baik said, new equipment is being installed while renovations are running parallel at ART. He said US$18 million, comprising US$15 million capex and US$3 million working capital, has been committed into the business. Reserve Bank of Zimbabwe approval has been secured for the investment.
Last month, ART announced to its board that Taesung would supply raw materials up to a limit of US$3 million and capital goods up to a limit of US$15 million.
ART was taken over by Taesung in August 2013 after its performance continued to be weakened by the high cost of borrowing which stood at US$1,8 million in finance costs at an average rate of 18%.
Taesung owns a number of companies, including Blue Track Investments (Blue Track) which manufactures Bella hair products.
The synthetic hair products manufacturer acquired the struggling synthetic hair manufacturing company in 2003.
After significant investment, the company has grown from 43 employees in 2003 to the current workforce of 700, spokesperson Moses Chundu said during a tour of the company earlier this week. He said the company plans to employ 1200 workers by end of 2014, 90% of which will be female, as part of their expansion drive.
Since dollarisation, the company’s turnover grew from US$1, 9 million in 2009 to US$6, 8 million in 2013. In 2014 the company is targeting a turnover of US$11, 3 million.
Exports as a percentage of revenues grew from just 7% in 2010 to 28% in 2013 and is expected to reach 31% in the current year as the company explores new markets in Mozambique.
Chundu said efforts to grow the company were hampered by the shortage of foreign currency and the harsh operating environment prior to the multiple currency regime.
“In 2009 at the point of dollarisation it was like starting all over again, but this time with a debt overhang in respect of unfulfilled credit facilities from the Zimbabwe dollar era,” he said.
Since 2010, Blue Track has invested US$1,6 million into the synthetic hair products business.
The company is currently saddled by a US$1, 7 million debt which it plans to retire by year end. However, Chundu said this depended on the performance of the economy as changes in the current operating environment could hinder operations.
In terms of costs, Chundu said synthetic fibre imports from South Korea constituted 35% of costs. He said the company uses about 2, 5 tonnes of the fibre per month.
Labour costs stand at 30% of total costs which is too high, he said. The company aims to reduce labour costs to 20%.
Chundu said labour costs in Zimbabwe were too high because of the minimum wage which is around US$260 compared to US$130 in Zambia.
Blue Track’s production process for weaves and related varieties is mostly manual, from feeding synthetic fibre into machines for burning, mixing of fibres, cutting into different sizes, curling and styling to packaging.
Blue Track production manager Gbane Issoufou said capacity utilisation is at over 100% as the company outsources labour especially during peak periods, with plans to expand operations being considered.
In December, the company added 120 square metres in working area at the factory to put total floor space to 6000sqm including a smaller operation in Workington which specialises in the Yaki braid varieties.
Issoufous said the company had normal working days and used shifts during peak period-normally from October to December.