HARARE – Zimbabwe’s leading plastic pipe manufacturer Proplastics Limited is facing challenges in securing foreign currency for the importation of raw materials and capital equipment, which is essential to keeping the factory running.
On a monthly basis the firm requires a raw material cover of about US$1.5 million. However, since the introduction of the interbank market – meant to improve forex availability, it only managed to get about US$100 000.
Chief executive officer Kuda Chigiya told people at a recent analyst briefing the company had managed to put survival strategies in place to ensure the business remained viable, in a market characterised by acute shortages of foreign currency and rising inflationary pressures.
“It’s a small business but we have got huge appetite for foreign currency, 99.9% of our raw materials are actually a derivative of oil which we are not fortunate to produce in Zimbabwe and we inquire to import those raw materials from South Africa and China. That has actually remain the single most difficult challenge this business has been facing over the entire dollarisation period,” said Chigiya.
The continued shortage of foreign currency in the southern African nation is making it difficult for industries to procure imports.
“Through tolling arrangements we have actually managed to partner with traders that can source foreign currency and sale those important raw materials to us. But that is coming at a premium and unfortunately that premium have to pass it to the end-user and that end-user had to pass it on in their cost structure and that all affects the economy in general and the performance of the country at large.”
In a bid to improve the forex situation, the company said it was exploring other export markets particularly in Mozambique, Democratic Republic of Congo (DRC) and Malawi – albeit cautious of the risks associated with such markets.
In 2018, the company’s exports recorded a 67% growth compared to the prior period in 2017. The company is constructing a new factory to replace the current 54-year old property, likely to increase production levels from the current 8,000 tonnes to 12,000 tonnes annually. The new factory is 97-98% complete and is expected to be commissioned in the second half of the year.
“All things being equal we were supposed to complete the factory in November and December last year. We were supposed to have equipped it by the first quarter but we find it a challenge both on the capital expenditure requirements for the business and on the operating expenditure requirements that we have to find the 2 fronts and there is really nothing much available in the market,” said Chiginya.
“So we had to sacrifice some of the equipment that was required in the construction of the new factory so that we could keep our operations going.”
Equipment installation will commence in May this year.
“We already have equipment that have arrived from Germany, Italy we still have got a large a chunk that is still to come out of Italy. So we expect to commission the factory at the beginning of the first half of this year.”
He said the new factory would allow the company to enhance its competitiveness through factory efficiencies and economic of scale. The investment would also position the company, to compete well in the exports market.
In 2018, Proplastics capital expenditure stood at $5.49 million. Of the capex, the new factory took huge chunk of money at $4.72 million followed by Injection and Moulding Machines at $399 001. However, the least went to distribution trucks at $265 000. The capex figure is poised to increase father till the completion of the new factory.
“Once this forex issue and the trading becomes homogenous, we expect our cost structure to be competitive in order for us to be able to export that it is why we are putting all the capital investment into bigger bold pipes that will even for now Zambia, Malawi, DRC and Mozambique are not able to produce and we want to capitalise on the distance between ourselves and this country compared to South Africans and Botswana,” Chigiya added.
In the period under review, the company’s net profit rose 158% to $3.51 million from $1.35 million recorded in 2017 on the back of increased turnover. Turnover went up 50% to $24 million with major contributions coming from the civil, merchants and irrigation. Since 2015 to 2017, the income was almost constant but as for 2018 it reported jump due to inflationary pressures.
Turning to operations – factory volumes were 20% ahead of prior year largely on PVC volumes which grew 16%, HDPE (Black Pipe) grew 74%, IM fittings were up 9% and Overall Equipment Effectiveness (OEF) increased to 69% from 56% in 2017.
Overheads due to the inflationary pressures was up 45% to $3.9 million. EBDITA also went up 5.71 million from $2.91 million. But current ratio declined from 3.1:1 in 2017 to 1.8.1 as the firm gobbled quite bit of cash as it was sitting on a quite health cash resources at the end of 2017 – utilised that mainly into the new factory.
Debt to Equity rose to 10% from 4%, however, Financial Director Pascal Changunda noted that borrowings is poised to rise further by 13% in the H1 and then ease back towards 10% and below. Cash generated from operations to revenue increased 11%. Total assets stood at $21 million.
Total receivables went up 112% to $3.76 million partly due to advance payments towards the mixing plant and PVC resin ($700 000) and the growth in revenues, trade payables up 164% to $2.97 million.
“Trade receivables actually went down because for the greater part of the year it was almost a cash business part we had deposits we have to make for equipment coming from Italy, Germany for the new factory and sits in prepayments till such a time we capitalise, capex will went up to new factory also in 2019,” Changunda added.