CABLES producer, CAFCA Limited has lowered its production target to 200 tonnes per month from 300 tonnes due to depressed demand for its products.
The reduction is also a result of the poor performance of regional currencies, particularly the South African rand, which has negatively affected export earnings.
Zimbabwe uses a basket of currencies anchored on the United States dollar which has been firming against currencies used amongst its trading partners.
This has made the country’s exports expensive.
CAFCA has since suspended exports to South Africa, Malawi and Zambia — two of the major destinations of its products affected by weakening currencies.
Exports to Mozambique have not been affected.
The company’s managing director Rob Webster said they have also been affected by the slowdown in the mining sector where industry players are battling with low commodity prices and other viability issues.
“We have also been affected by government failure to pay suppliers and inability of potential home owners to raise mortgage bonds,” he told The Financial Gazette’s Companies & Markets (C&M.)
CAFCA primarily operates in Zimbabwe but is listed on both the Johannesburg and Zimbabwe stock exchanges.
Also on the domestic market, CAFCA used to get substantial business from power utility, ZESA Holdings.
Unfortunately, ZESA’s cash flows are down at the moment due to a reduction in power generation and also pressure on the power utility to find money to import power.
In September 2014, CAFCA entered into a barter deal with ZESA Holdings, one of its major suppliers, to replace the power utility’s cables with aluminum and then recycle the copper.
The deal, saw ZESA saving US$26,4 million.
Then the company said it did not anticipate any improvement in local sales as they were relying on copper recycling projects.
“Under the barter deal, 150 tonnes of copper used to give us sales of US$900 000 per month now 150 tonnes earns us US$675 000 per month,” said Webster.
For this deal, CAFCA invested around US$2,5 million in seed aluminium and around three months of research and development adapting its processes and procedures to run on 100 percent recycled copper. This meant CAFCA was relying solely on recycled copper and this had reduced its import bill.
In Malawi, Webster said their earnings were negatively affected by foreign currency shortages and devaluation of the country’s local currency.
In Zambia, foreign currency shortages due to the drop in copper prices and devaluation resulted in CAFCA downgrading its production.
The weakening of the South African rand made exports to the country more expensive while operations in Mozambique were affected by foreign currency shortages.
“Locally, there has been an increase in imports from South Africa due to the weakening of the rand which made South African cables cheaper in Zimbabwe. We are starting to see exports improving but at very tight margins as we are still competing with South Africa and their volatile rand,” he said.
CAFCA has warned that it expects a 30 percent drop in turnover in the half-year to March 2016 with profits hit by poor sales.
“Results to end of March are down as mentioned in the ‘Profit warning’ but cannot comment further as we are in a closed period. The outlook remains that the company has a strong balance sheet that should see borrowings eliminated whilst profitability will be low until such time as the economy picks up. Costs will continue to be cut in line with any drop in sales to ensure the company remains viable,” Webster told C&M.
SOURCE: Financial Gazette