BY MISHMA CHAKANYUKA
PIPES manufacturing concern Proplastics says its order book is low due to low disposable incomes, with the group resultantly forced to cut down on production.
During the company’s annual general meeting, chief executive Kudakwashe Chigiya said weak demand was affecting the group’s operations, with the situation expected to worsen with time.
“This has affected operations; we had to slow down on our production levels. We had to adjust our cost structure in line with the revenue that we are generating so that we remained profitable,” he said.
“At the moment, we have been running at 25% utilisation. During the same period last year, we were running at about 65%. Initially, it’s going to get worse, unfortunately. Once all the fundamentals are put in place, it might start improving, but we will be approaching end of year.”
Chigiya said the trading environment from October 2018 remained subdued as the value of the RTGS dollar declined in the face of inflationary pressures.
“The foreign currency issue has actually gotten worse. The last time we got an allocation from the Reserve Bank of Zimbabwe was in September 2017. We gained some small partnerships with the traders that have access to foreign currency and they, in turn, buy raw materials for us and we are paying using the local RTGS dollar,” he said.
At the beginning of the year, direct US dollar sales were contributing 15% to converted total sales and they have improved significantly at the expense of the RTGS and, as a result, the group has been using a two-tier pricing system, with RTGS prices being aligned to inflationary changes.
The utilities supply challenges got worse during the period, with power cuts of up to 12 hours, while the group’s sales volumes were below prior year by 25%.
Chigiya said all the company’s sectors were affected, except borehole drilling, which grew by 195% in volumes compared to prior year as demand in that sector surged. This had shifted to +60% before the introduction of Statutory Instrument 142, which has banned the use of foreign currency for all local transactions.
The group expanded its branch network, with the opening of a new branch in Gweru, which is expected to contribute 5% in total revenue.
Chigiya said the group managed to preserve value for the business, but expects it to be more difficult following the ban on the use of foreign currency for local transactions and making the RTGS$ legal tender.