Forex turmoil forces firm to review ops

PLASTIC pipe manufacturer Proplastics says it will have to scale down operations if the current volatile economic situation continues, a company official has said.

By Melody Chikono

The group, which imports 90% of its raw materials, has been utilising tolling and twining manufacturing arrangements and managing foreign currency availability to preserve its balance sheet.

Proplastics CE Kuda Chigiya told businessdigest this week that the increased export drive was paying off and assisting in generating foreign currency.

“We will continue with tolling and twinning manufacturing arrangements. The increased exports drive is paying dividends, especially from Zambia and Mozambique, and this will certainly assist in the generation of the much-needed foreign currency. We will continue to review our trading conditions in line with the changing environment without excessive erosion of a balance sheet,” Chigiya said.

He said price reviews are inevitable if the company is to remain competitive and cushion itself against currency distortions. Hopefully, normalcy will prevail despite the current economic challenges, he said.

Proplastics was working on a top-line target of US$25 million, banking on high demand in the last quarter.

Chigiya said Proplastics was on course to achieving its targets until the trading environment worsened post-election.

Given the current state of the economy, he said demand has not reached its perennial peak but the market has certainly slowed down as everyone tried to ascertain the direction the economy will go.

“We do not see ourselves shutting down operations but given the constraints, we may have to scale down as we manage the availability of foreign currency and consequently the requisite raw materials in order to preserve the balance sheet,” Chigiya said.

“It is difficult to say at the moment as the trading environment has worsened in the previous and current month. Up until then we were on course to achieve our forecasts. We might be able to assess the direction issues are taking in the month of November.”

Going forward, the company’s gearing ratio is seen going up as a result of increased borrowings to finance construction of a new factory.

Proplastics is constructing a new factory management said was now 90% complete, adding business would forge ahead with the completion of the construction. In the half year to June 31 2018 (H1 18), the company saw an increase in turnover to US$10,7 million on 2 600 tonnes.

Revenue jumped 71% to US$10 762 251 in H1 18 from US$6 278 150 recorded in the same period prior year, with volumes increasing by 29%, driven by a strong demand especially in H1.