• Revenue grew of 91% to ZWL186 billion, but unable to offset heavy operating and net losses
  • Profitability impacted by largely operating costs, introduction of 15% VAT on clay brick sales
  • Company should focus on cost optimization strategies, including reviewing expenses, streamlining processes, and aligning pricing with cost structure

Harare- Willdale Limited, a prominent manufacturer and marketer of clay brick products within the Zimbabwean building and construction sector, has reported a weaker financial performance for the half-year period of the 2024 fiscal year.

The group's trading position and bottom-line results were in the negative territory, primarily due to elevated operating costs during the reporting period.

The organization recorded a remarkable 91% year-over-year increase in topline, with a turnover of ZWL186 billion. However, this substantial revenue growth was insufficient to offset an operating loss of ZWL112.79 billion, a significant widening from the prior year's ZWL18.63 billion. Ultimately, the company incurred a loss after tax of ZWL198 billion, a stark contrast to the profit of ZWL4 billion reported in the comparative period.

According to the group's chairperson, Cleophas Makoni, profitability was adversely impacted by the volatility of exchange rates and indices used to compute revenue and expenses, leading to unrealized exchange losses stemming from the revaluation of foreign currency-denominated liabilities. The instability of the Zimbabwean dollar had a detrimental effect on exchange rates.

At macro-economic level, the company's financial performance was further compounded by the introduction of a 15% Value-Added Tax (VAT) on clay brick sales, effective January 2024. This new tax levy had a significant impact, as customers resisted the increased prices and opted to purchase from cheaper suppliers who were allegedly not complying with the VAT requirements. This narrowed the revenue effectiveness for Willdale.

However, even with the topline growth, the company's cost of sales and operating expenses were alarmingly high. The cost of sales reached a staggering ZWL176 billion, likely eroding the whole portion of the company's topline. This was further exacerbated by the administrative expenses, which amounted to ZWL45 billion, and the distribution expenses of ZWL13 billion, collectively contributing to the overall operating loss.

The company has limited ability to address electricity costs and exchange rate disparities, as these are problems at the macroeconomic level. However, at the microeconomic level, the company must focus on cost optimization.

Willdale needs to prioritize the development and implementation of robust cost-management strategies. This should involve a thorough review of administrative expenses to identify areas for potential optimization or cost reduction.

The company should evaluate its organizational structure and look for opportunities to streamline processes, reduce redundancies, and improve overall efficiency. Additionally, the implementation of robust budgeting and cost control measures will be crucial in managing administrative spending more effectively.

It should also consider outsourcing or automating certain administrative functions where feasible, in order to reduce in-house costs. It may need to explore opportunities to automate or digitize certain operational tasks to reduce manual labour and associated expenses.

The 15% VAT increase led to only a 3% increase in sales volumes. To maintain operating efficiency, Wildale had to pass on the cost to consumers. However, customers were reluctant to buy at the higher prices and opted for other informal suppliers instead.

This highlights the government's continued failure to address the high level of informality in the economy.

Despite these challenges, the company needs to carefully analyse its pricing structure to ensure it aligns with the company's cost structure and desired profitability targets.

On a positive note, the company was able to leverage the poor rainy season to restart extrusion earlier than usual, resulting in a 145% increase in green production compared to the prior year.

"Production will continue to be ramped up, subject to the availability of electricity and working capital to meet growing demand. Efforts are underway to secure funding to acquire the planned all-weather plant."

Planned all-weather plant" refers to a new production facility the company is in the process of acquiring, which will allow them to maintain consistent output and meet customer demand even in challenging weather conditions. Obtaining this new plant appears to be a key strategic priority for the company.

Therefore, to improve its financial performance, Willdale will need to focus on implementing robust cost optimization strategies, such as reviewing administrative expenses, streamlining processes, and aligning pricing with its cost structure. While the company has limited ability to address certain macroeconomic challenges, its ability to ramp up production and secure funding for a new all-weather plant may provide some relief going forward. 

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