Contracting group Masimba Holdings is closely watching its margins and return on capital investment to preserve value in Zimbabwe’s hyper-inflationary environment, CE Canada Malunga has said.
Profit margins are currently sitting at about 4,5 percent against a target of at least 6 percent while return on capital investment targets are upwards of 10 percent for the group to remain sustainable, Malunga told analysts after a tour of Masimba’s construction projects in Harare last week.
Malunga said most of the transactions in Zimbabwe remained largely in RTGS posing a huge currency risk which business deals with on a daily basis. “We have had to scale back to understand the cash flow, you can’t just be reckless,” Malunga said.
In the case of Masimba he said, the group reported a 46 percent revenue growth in 2018 to $40 million, 12 percent being in US dollars. The group reported after tax profit growth of 65 percent to $2,8 million in 2018.
At the closing period, the group had cash amounting to $3,7 million, $700 000 of which was in hard currency paid by clients who paid on a 1:1 basis prior to introduction of the interbank market.
Giving an update of operations, Malunga said the group’s order book sits on $45 million which is a combination of RTGS and US dollars at a rate of 2.5 with a bias towards mining and housing infrastructure.
Turnover growth is suffering from suspension of major projects as customers fail to pay due to currency risk.
Malunga said the company faces a liquidity risk which is related to foreign currency risk. Materials availability has also become a huge question given the shortage of foreign currency.
“We now have seen a risk which we had forgotten about; people risk. We have now started seeing movement of people in the market into the diaspora,” Malunga said.
In an update of projects, Malunga said the company is expected to complete a 10 million litre Southview Park reservoir by end of next month.
The company is now installing reinforcing steel to complete the tank. A pump house has been completed and awaits mechanical components.
Water to the reservoir will be carried by a 10km 450 diameter pipe from Rothmans using gravity.
Fifty three tonness of reinforcement steel was used for the reservoir tank while the elevated slab took 152 tonnes of steel.
Six hundred cubic metres of concrete was used for the reservoir.
The company also constructed the Proplastics new factory which is almost complete. The project started in December 2018.
The Proplastics new factory took 350t of steel and 1500 cubic metres of concrete. Masimba said most of the components at the Proplastics building were imported including a new power station which will be handed over to Zesa on commissioning.
The Old Mutual SME centre near Eastgate Mall is complete.