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High operating costs erode profits

COMPANIES are reeling under the burden of high operating costs chewing into their profits as structural rigidities in the economy bar efficiency.

There are companies which have increased operating revenues, but this has not translated into increased operating profits as it is matched by high cost of production.
Companies started releasing annual results since the country adopted the use of multiple currencies and they use the US dollar as the standard currency.
Signs are that despite the stability that came with the use of multiple currencies, companies are yet to fully enjoy the benefits.
Four listed companies released annual results last week and there was a trend showing that the cost of doing business in the country is still very high.
Hwange Colliery Company, one of the companies which released their annual results last week, had revenue of US$66,3 million with operating and administrative costs totalling US$60,4 million.
This shows that it costs close to US$0,90 cents for the coal and coke producing company to make a dollar.
Financial group ZB Holdings was also caught in the same trap with its operating costs almost equalling revenue, leaving them with a net profit of US$112 312.
Economists have attributed this position to the high costs of utilities which lead companies to price their products highly thus the increase in revenue, but at the same time this would be washed away.
David Mupamhadzi, an economist, said this was a sign that there were structural problems in the economy.
“We have a situation where importing chickens from Brazil is lower than growing the chickens in the country,” said Mupamhadzi. “One way of addressing this structural problem is to come up with policies aimed at the key enabler perspective, that is the capacity of industry to produce at low cost.”
Mupamhadzi added that this would include looking at why the utilities — that is energy, water and other rates — are high.
High operating costs are spread across all sectors of the economy.
Zimre Holdings Ltd (ZHL) was also pulled down by the high operating cost
which was almost at par with income leaving them only US$1,2 million richer. This was despite a US$39,6 million revenue generation.
ZHL chairperson, Ben Kumalo, said there were liquidity constraints limiting inflows of foreign funds and the absence of long-term funding which was affecting the performance of productive sectors.
“The insurance and banking sectors are still to realise the full benefits from the economic stabilisation and recovery,” said Kumalo. “Low income levels and severe liquidity constraints continue to affect the uptake of insurance and banking products on the domestic market.”
CBZ Holdings was an exception as it managed a US$8,1 million profit from a US$16,1 million revenue meaning that it cost the financial institution 63 cents to make a dollar.
Despite their exceptional performance, CBZ chairperson Luxon Zembe said there was “perceived high country risk coupled by challenges in the supply of electricity and water, deteriorating infrastructure in the form of road and rail network”.

 

Leonard Makombe

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