Volatile exchange rate weighs down GB profitability
RYAN CHIGOCHE
The volatile foreign currency exchange rate has seriously affected General Beltings operations and made planning difficult due to high cost of doing business in the country and ever-changing prices.
The development is further exacerbated by the delayed disbursement of approved auction bids thereby pushing general price levels.
In a trading update for the third quarter ended September 302021, General Beltings finance director Patrick Munyanyi said the enactment of SI 127 of 2021 had the inevitable effect of constrained pricing of output while input costs had a parallel rate base.
“In addition rapid dollarisation in the economy and the consequent basing of local costs on unofficial rates further reduced profitability when compared with same period prior year.
“This anomaly effectively rendered local products uncompetitive against imports thereby negating the fragile recovery since beginning of the year,” Munyanyi said.
He said the impact of Covid-19 pandemic in the quarter persisted, while the violent riots in South Africa and the subsequent cyber-attack all conspired in the disruption of logistical flows of raw materials resulting in reduced consumption of the company’s products.
Notwithstanding the above challenges, volumes for both divisions were 31 % and 48 % ahead of same period prior year for the chemicals and rubber division respectively with both divisions operating profitably. Margins were, however, under severe pressure due to the strengthening of the rand against the United States dollar which resulted in increased raw materials costs.
In the outlook, the expanded vaccination programmes and their acceptance by the general populace brought respite to the economy as the rate of infection declined while at the same time there were significant gains towards achieving herd immunity.
This development is expected to result in relaxed lockdown measures which would impact positively on aggregate demand as other key markets of the company which include hospitality and schools open up, Munyanyi said.
The company expects to operate profitably for the rest of the year although at reduced levels when compared with prior year and budget.
The chemicals division is expected to recover from the effect of lockdown measures which shut off its traditional markets, Munyanyi said.
The rubber division is expected to maintain its recovery path and its out turn will depend on improved logistical flow of raw materials following the intermittent disruptions at the raw materials suppliers’ factories.
