…but demand for group products likely to remain flat
Proplastics says it will continue to implement a number of initiatives aimed at improving top-line and bottom-line performance despite the trading environment’s complexity
The annual rate of inflation was estimated at 340% in October. The significantly high rate is the result of a persistent exchange rate depreciation that has amplified the transmission of elevated global prices to the domestic market and the overall poor macroeconomic situation.
However, on a monthly basis, the food inflation rate slowed to 3 percent, down from 14 percent in August. The recent slowdown comes amid a number of measures the government introduced to curb inflationary pressure, including a steep hike to the benchmark interest rate and the removal of import duties on several key food commodities.
“Other monetary policy shifts included raising of the interest rate to 200% on the ZWL denominated borrowings, and as a result, the business was negatively affected by significant increase in finance costs on local borrowings,” said the company in a trading update for 9 months ended 30 September 2022.
Delays in settling allocated amounts by the apex bank have been the greatest challenge for most companies, as it has worsened their foreign currency exposure.
“Settlement of allocated foreign currency amounts at the auction floor were delayed but outstanding amounts largely reduced from the half year position.”
Some people were reportedly forced to buy dollars in alternative markets in order to avoid disruptions.
The group’s inflation adjusted revenue for the period under review was 18% above prior year. As a result, of depressed disposable incomes, sales volumes declined 10% compared to prior period.
Exports revenue recorded a decline of 30% compared to prior period owing to currency volatility.
“The current cash sales ratio is now skewed in favour of the US dollar. The group is currently relying on local US dollar sales and export proceeds in sustaining all import requirements,” it said.
Gross profit margins for the reporting period improved compared to prior year on efficiencies realized from the plant modernization initiatives.
“With the enhanced factory capacity, the business will be able to convert all anticipated orders.”
The third quarter has seen an increase in profitability, which had been impeded by currency losses brought on by past-due payments to overseas creditors in the first half of the year, according to the group.
A total of US$2.7 million was spent on capital equipment in the 9 months of trading.
“The newly commissioned PVC line has already contributed 12% to the total production volumes since April 2022 while the new injection molding machines and molds resulted in a 10% increase in total volumes for the period,” reads the trading update.
It expects full year performance to show an improvement from the reported first half performance.
“With all the complexities in the trading environment, the business remains alive to the challenges and continues to implement various initiatives focused on improving revenue and profitability,” it said.
Given the start of the rainy season, demand for group products is probably going to stay flat through the end of the year – Harare