eBusiness Weekly
Company has not accessed RBZ forex allocation this year…Paying 60 percent more for 90 percent of its raw materials
Kudzanai Sharara
Zimbabwe’s leading plastic pipe manufacturer Proplastics, has resorted to putting up prices and asking its customers to pay for raw materials on its behalf as foreign currency challenges continue to dog the nation, chief executive officer Kuda Chigiya said on Wednesday.
The country is currently facing severe shortages of hard currency that has seen local manufacturers failing to pay for imported raw materials and equipment and in the process straining relations with foreign creditors.
Proplastics, is no exception.
According to Chigiya remittances for the importation of raw materials was the single most difficult challenge faced by the group.
Chigiya told Business Weekly on the side-lines of the company’s analysts briefing for the half year to June 2018, that the company required $750 000 for imports, but the amounts available have not been sufficient to meet the group’s requirements.
At least 90 percent of raw materials are imported from South Africa and China, he said.
“We used to get allocations from the Reserve Bank of Zimbabwe but since the beginning of the year those (allocations) have dried up completely, and as a business we have had to look at other alternatives to ensure survival,” said Chigiya in his presentation.
“To that I am pleased to advise that we have actually managed to form smart partnerships with our key stakeholders being our local traders that have access to foreign currency for them to pay for that foreign currency and in turn they bring raw materials into Zimbabwe and we pay through the normal RTGS and bond system.
“We have also introduced what we call toll manufacturing for those clients that are in our books and have access to foreign currency. We have had to ask for them to pay for the raw material and that raw materials we are using it to cover our own operating costs.
Chigiya said the company was losing 15 percent in value as margins are sacrificed due to payment of raw materials at a much higher price than it would have ordinarily paid had it been accessing foreign currency for raw materials through formal channels.
“It is also important to advise that going into the market changes the dynamics because of the premiums that was attached to those initiatives and it was coming to about 60 percent more expensive to procuring raw materials through the toll production processes and through the twinning arrangement,” said Chigiya.
To cushion itself, the company must have put up prices for its products with company secretary Pascal Changunda, telling analysts that internal inflation was measured at 41 percent against ZimStats figures, which puts inflation at less than three percent on average.
That gap is evident as revenue for the period under review grew by 71 percent to $10,7 million against a growth in volumes of just 29 percent to 2,618 tonnes.
Chigiya said despite the extra 60 percent, the company has had to pay for imported raw materials, gross margins had still improved to 32 percent up from 26 percent prior year comparative as revenue grew at a much faster rate than cost of sales and overheads.
Despite the foreign currency challenges, Chigiya believes the company had done well in the first four months of the year.
The first four months were very pleasing and encouraging as the company experienced phenomenal growth in that period, he said.
“Demand started slowing down in the last two months of the half but it was above average, so the first half performance actually produced, overall, a very pleasing performance with respect to both volumes and revenue.”
Chigiya said performance for the full first half was pleasing, overall, with phenomenal revenue growth coming from civils.
“In terms of revenue contribution by sections we actually experienced phenomenal growth with respect to civils, civils are your large construction companies that partakes bigger projects,” Chigiya said.
He said sales were coming from individual construction initiatives for housing developments and also irrigation from the new farmers that are coming back into that sector.
“We have also managed to get some decent order numbers from the Ministry of Agriculture’s department of irrigation and the Zimbabwe Water Authority as well.”
The Zimbabwean Government has several support facilities for development and rehabilitation of irrigation infrastructure to improve productivity on farms all year round.
Chigiya gave a breakdown of how individual lines performed in terms of revenue growth.
In the outlook, Chigiya said although demand is slightly subdued at the moment, we expect this to improve as we go through the third quarter and into the fourth quarter.
“This will be underpinned by activity in the agricultural and mining sectors as well as infrastructure rehabilitation that is underway,” said Chigiya.
The Company is also in the process of constructing a new factory with progress currently at 55 percent while completion is targeted in the fourth quarter of the year.
“But the equipping will take place in the first quarter of the next year (2019). Deposits for the equipment associated with the new factory have already been affected and the equipment is currently under production.
