Starafrica says recovery faltering

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Starafricacorporation Limited, a diversified manufacturing, distribution and wholesaling company, can’t think of a reason why it shouldn’t ‘right-size’ operations, seeing Zimbabwe’s economic growth faltering and inflation soaring.
The conglomerate said this after disposing Red Star Distributor Zambia during its financial year to March 31 following protracted viability problems caused by over-reliance on debt-financing, which hurt profitability.
Starafrica’s projections, which colours the outlook for continuing operations, resonate with the International Monetary Fund (IMF)’s observations early this month that Zimbabwe’s macroeconomic ‘vulnerabilities’ were intensifying and weighing down its recovery.
The multilateral financial institution, which sees Zimbabwe’s real gross domestic product slowing to zero next year, has already downgraded Zimbabwe’s growth outlook this year to just 2,2% from 7% estimated by the country’s economic planners.
The annual inflation rate is also expected to touch two digits by year end after hitting 61,1% in May.
For a second year, under ‘dollarisation’, Starafrica posted a loss in Earnings Before Interest Taxation, Depreciation and Amortisation (EBITDA) and blamed this on macroeconomic factors, among them, unreliable utilities that grounded refineries at its sugar business.
“The projected growth of the Zimbabwean economy is faltering under the weight of adverse conditions such as low foreign investment, persistent power outages, rapidly rising inflation pressures over the past three months and serious liquidity constraints that have kept interest rates and production costs high,” Matupire, Starafrica’s company secretary said in a brief accompanying the group’s abridged full-year financial report.
The conglomerate, which operates food, industrial and wholesale and retail divisions, says it will further rationalise its operations in the new year to focus on boosting its core sugar business whose performance was hamstrung by a shortage of funds to buy raw sugar and other raw materials.
For the full year, Starafrica reported an EBITDA loss of $7,8 million stated without a comparative.
The food business comprising Gold Sugars, Country Choice Foods and West Beverages, contributed 67% of the group’s EBITDA loss, attributed in part to utility-related downtimes and in part to raw material shortages.
At one point, Starafrica had to write to the mayor of the city of Harare seeking urgent redress after its sugar refineries in Workington had shut down for two weeks owing to water supply cuts.
Red Star Zambia contributed about $1,4 million to the loss.
Total revenue reached $103,7 million during the period.
The bulk of this — about 52% — came from the conglomerate’s wholesale and retail business led by Red Star, followed by the food business, 42% and the industrial division, 6%.
For a second year, a high interest burden on short-term debts aggravated the company’s earnings, increasing the operating loss to $10,3 million.
After factoring in depreciation costs, the loss grew to $13 million.
To retire the expensive short-term debts, acquired to fund capital expenditure and boost working capital, Starafrica had to raise $20 million through a combination of an equity offering and a convertible debenture.