Brick manufacturer Willdale Limited says continued foreign currency shortages are crippling progress on a US$2 million capital expenditure (capex) planned replacement programme for its obsolete machinery slated for this year.
The company, which says it has already poured in excess of US$200 000 into the replacement of its mobile equipment in full-year 2019, is still trying to figure out a financing plan.
Last week, the company’s CE Nyasha Matonda told businessdigest it was crucial now to replace its machinery, most of which had been in use for more than five years but foreign currency availability was a major challenge.
“We have really been affected by the foreign currency shortages, although we have put in place mobile equipment, our fork lifters, our tractors, etc. It is still a big challenge. We have used around US$200 000. In the future we need to move. We have a replacement plan in place. Most of our equipment needs to be replaced. It’s been up and running for the past five years,” he said
Matonda said the company has failed on several occasions to access foreign currency on the interbank foreign currency market. The introduction of the interbank market in February last year has not been effective in addressing the forex conundrum with 88% of more than 300 companies surveyed by the Confederation of Zimbabwe Industries getting only 10% of their requirements on the facility.
“We still have a challenge on how we are going to source it. We believe that the funding from the production proceeds will be able to help us but we have not really figured it out. We have tried the interbank but nothing yet.”
While he hoped that they would be able to fund the programme using internal resources, he said the company was pinning its hopes on a strategy that will see them piling stock off-season in a volatile economy.
“Our production was quite good last year. We had a lot of stock which is now helping us to finance the business. As we speak right now, we have been selling our brick during the off season period and the funding of those bricks has helped us to stock for new production. It’s a strategy that we are saying going forward should be selling during the off-season and then we stock and restock materials in the new season,” he said.
Meanwhile, in full-year 2019 the company was debt free with no foreign exposure thanks to the piece of land that the company disposed last year.
Willdale disposed of a piece of land which yielded after-tax profit of ZW$25 million in half-year 2019, which was utilised to settle interest-bearing debt following a shareholders’ nod in May 2019.
“We actually offloaded a piece of land so that we can deal with borrowings last year. We cleared the borrowing, no foreign exposure,” he said.
Matonda also bemoaned high inflation and the depreciating Zimbabwean dollar, saying it had also negatively affected the company’s operating environment in the five months ended February 2020.
“Since our last update to the market for Q1/2020, inflation and an unstable currency have continued to impact our operating environment. This has the effect of diminishing disposable incomes, thereby affecting the individual home development cluster of our market besides increasing our cost of production,” he said.
However, despite the economic difficulties, Willdale’s profitability in historical terms for the period under review had grown above the inflation rate due to an effective pricing mechanism and cost containment measures.
