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What next for PG Industries Zimbabwe?

What goes through the mind of an executive of a company which continues to record losses for three straight years?

Kumbirai Makwembere

What should one do to turn around a firm that is highly geared and heavily undercapitalised to the extent the balance sheet has negative equity? Is there a way out of a scenario where there are a lot of new players eating into your market share — some with cheaper and better quality products? Such is the sad reality that the leadership at PG Industries Zimbabwe (PGIZ) has to deal with on a daily basis.

PG Industries is one company that many expected to benefit from the dollarised environment. This is because the stability ushered by the new environment enabled individuals to save towards building their own houses.

As such, companies in the construction and allied sectors were expected to benefit. Unfortunately, this potential has not materialised for PGIZ.

The company has continued to record losses and financial results recently published for the six months to June 30 2013 show that it is still deep in the red. The company’s financials were highly summarised, making them too vague to make any meaningful analysis out of.

This, however, is to be expected for struggling companies as management try to conceal the actual state of ‘affairs’ at the company.

Financials for the six months to June 30 2013 were appalling, with revenues improving by 11% to US$16,95 million. The company disclosed that demand for products softened over the period due to tight liquidity in the economy. Intense competition pushed down the gross margin to 27% from 31%.

At operating level, PGIZ made a loss of US$842 245, which was an improvement from the negative US$2million recorded in 2012.The company retained a loss for the period of US$2,4 million compared to US$2,8 million recorded over the same period in 2012. This was after paying an interest bill of US$1,4 million.

PGIZ closed the period with a negative equity position of US$782 062. The gearing ratio is now scary as interest bearing borrowings are high at US$13,7 million. The going concern status of the company is now at risk as the gap between current liabilities and current assets further worsened to US$8,9 million compared to US$6,8 million recorded in December 2012.

Rescuing PGIZ appears to be an uphill task as there are a slew of manacles clamping the company’s operations. Inadequate working capital is its biggest challenge, resulting in the company resorting to expensive short-term bank borrowings.

This has resulted in the company recording huge losses owing to high finance charges.

The ideal solution would be for shareholders to inject cheaper long-term finance into the business. However, shareholders are unlikely to take this route as they still require answers to what the US$11,2 million invested in the business in 2010 was used for.

The main shareholders, namely TA Holdings and ABC, have already written off their investments in the company, which is a clear indication they have lost confidence in its survival.

Going into the future, management plans to sell off excess properties and use the proceeds to reduce bank borrowings. It is 10 months now since management got shareholder approval to sell the excess assets and nothing has materialised due to tight liquidity.

It appears this solution is unlikely to yield fruit as liquidity in the economy is not expected to improve in the short-term. Furthermore, this will not completely address the company’s challenges.

Even after reducing its bank borrowings, more money will be required for working capital.
There is need to grow the topline, which is an uphill task as demand for products remains depressed due to tight liquidity and increased, stiff competition from imports coming into the country from Asia. Lately, there have been several new players, particularly on the merchandising side; one of them linked to former PGIZ executives. Products from PGIZ are again viewed as expensive when compared to the competition. PGIZ is at present pinning its survival hopes on Zimtile but this won’t be easy as companies like Turnall and Beta Tile are also making inroads into this market.

PGIZ is a sad story because unlike the protracted recapitalisation plans of AICO and Rio Zim which impacted negatively on those businesses, PGIZ shareholders were proactive and injected money into the business timeously. It would however appear that the funds might not have been used for the intended purposes.

As a result the company has not benefitted from improved activity in the construction sector. In the process, shareholder value has been destroyed as evidenced by a miserable market capitalisation of US$478 330 compared to US$58 million in March 2009 soon after the economy dollarised.

Proffering a solution for PGIZ is difficult but one thing that is certain is that both management and shareholders should act quickly to prevent the company from joining the growing list of companies such as Caps, Cairns and Steelnet on the scrap heap.


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  1. Kumbirai thank you for a very factual analysis. This company is gone, Hilary the CEO , Adam zvandasara the FD and Caroline mapupu HR must resign with immediate effect. How do they explain the reduction of market capitalisation from US$58million to US$478 000. The share is now worth 0.10 us cents. The head office has been booted out of seke road. The market share has significantly reduced thanks to dismissed employees. Salaries are now paid after 2 to 3months when Sherwood the south African supplier is paid after one month. Hilary you got the best support from the board. After the $11.2m rights issue remember you got a loan of $3.5million from the banks what else do you want. Please Go

    • Hilary Munyati former C.E.O of SMM, Chairman of steelnet, Finance manager or Director of RBZ. This is the guy you entrusted to run PG industries in Zimbabwe and expected results. The guy is arrogant , incompetent and cruel. Where are all the companies that he has had something to do with. Just watch this Poor Group. Besides being a lucky guy he does not have capacity to run a department let alone PG.

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