CAFCA budgets for near double increase in capacity, says fx allocation should be timeous

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Cafca

Tadiwa Musiyiwa 

Cable manufacturer CAFCA Limited is set to adjust its budget to increase capacity by 90% from the current 250 tonnes.

In the company’s 2021 annual report Managing Director Robert Webster said the company made a significant investment and purchased new equipment amounting to $63.3 million at year end in order to increase capacity.

“No investments were made this year on new plants as all the foreign currency sourced was prioritised to procuring raw materials and spare parts”.

Cafca disposed of fixed assets worth $2.16 million during the period.

The company is confident that a moderate increase in volume will be achieved on the back of a steady economic environment.

Webster however, bemoaned the lack of sufficient foreign currency to maintain momentum and growth that all stakeholders’ desire, adding the availability of foreign currency would lead to an increase in volumes during the year for both the local and export markets.

“The biggest challenge the manufacturing sector has at the moment is to access sufficient foreign currency to maintain the momentum and growth that all stakeholders desire, provided timeous availability of foreign currency. We are confident that volumes will grow in the coming year both in the local and export market.

Webster said the company was getting foreign currency sufficient only for raw materials and spare parts and could not invest in any new plant despite ageing equipment and this would hinder its capacity to increase volumes.

“No investment was made this year on the new plant as all the foreign currency we could source was prioritised to procuring raw materials and spare parts. The age of our equipment requires us to have a significant investment in engineering spares and at year end we were carrying $63,8 million in engineering spares,” he said.

Improvement in economic activity post the COVID-19-pandemic-induced lockdowns saw CAFCA volumes increasing by 49% from 1 744 tonnes to 2 604 tonnes in the period under review. This was on the back of improved local demand, including projects in mining, retail and utilities which lifted local sales volumes up by 57% while exports improved by 16%.

CAFCA manufactures and supplies cable and allied products for power utility Zesa, telecommunication companies and other local buyers and also exports to Botswana, Mozambique, South Africa, Zambia and the Democratic Republic of Congo.

The cable manufacturer recorded a 292.2% increase in revenue from $860.8 million to $3.4 billion mainly driven by the 49% increase in volumes.

Profitability at 31% of turnover is ahead of the company’s benchmark and attributable to the benefit of carrying stock in a hyperinflationary environment.  Profit increased to $1.56 billion from $508 million recorded the previous year.

CAFCA generated operating activities worth $22.88 million income for the period under review. This indicates that the company’s liquid assets are increasing; enabling it to meet obligations, reinvest in the business and to pay dividends to shareholders as well as buffer against future financial challenges.

Cash flow was positive for the financial period at $237.5 million and return on equity was 16.8%.

CAFCA did not declare a dividend due to uncertainty around the stability of the current exchange regime and the unknown requirements of future working capital.

The local currency has depreciated its value against the United States dollar as a result of the 100% disparity between the official exchange rate and the parallel market rate and this has negatively affected the divided prices since the price is being pegged in the local currency.

Over the years the manufacturer has been given a protection period from imports to allow it to retool without the threat of cheaper cable imports. The company has a deal with power utility, Zesa where it is allowed to harvest scrap copper in exchange for aluminium conductor cables.

CAFCA is currently trading at 17 000.00c with a market cap of $1.48 billion.

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