Companies rake in profits despite depressed demand

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By Alois Vinga

COMPANIES in Zimbabwe continue to rake in huge profits on the back of continued price increases despite operating in an environment characterised by reduced product demand and poor customer purchasing power.

Companies such as National Tyre Services’ revenue came in at ZWL$8.6 million which was 42% above budget and 113% above the previous comparable quarter despite a 51% decrease in the volumes of tyres sold compared to the previous quarter ended 30 June 2018.

“The trading environment was characterised by continued shortages of foreign currency, steep increases in year-on-year inflation and reduced aggregate demand as businesses and consumers adjusted to the challenging environment,” acknowledged the company’s secretary, Stewart Mandimika.

He also said that productivity was negatively affected by power outages during the period under review, re-treading line volumes decreased by 10% compared to the prior year.

The company also recorded a 36% decrease in services lines volumes during the review period compared to the prior year.

Turnall Holdings Limited chairperson, Rita Likukuma agreed that her group experienced depressed product demand during the first half due to low disposable incomes, economic hardships and inflation but managed to record massive profits.

“The group’s turnover for the half year increased to $25.0 million compared to $13.5 million in the prior comparable period.

“The group reported profit from operations of $6.8 million from the previous comparable period’s profit of $2.5 million. Finance costs declined to $0.3 million from $0.4 million due to the impact of favourable debt restructuring,” she said.

For First Mutual Property, revenue for the period grew by 70 % to $6.7 million.

The growth relative to the prior year is due to rental reviews, lettings in vacant spaces and turnover rentals driven by continuous price adjustments in an inflationary environment.

This came despite occupancy levels increasing by a paltry 8% to 82.79% from 74% recorded last year.

The revenue increases have been credited by an increase in rentals of between 30 to 150 % effected across the industry.

“Rentals value growth were driven by a combination of exchange rate depreciation and rising inflation. In addition, rising inflation posed challenges for property portfolio valuation as their value gains were significantly higher than increases in revenue resulting in unsustainably low yields,” said FMP chairman, Elisha Moyo.