Is Triangle going under? What has caused them to retrench

31 Jan, 2025 - 00:01 0 Views
Is Triangle going under? What has caused them to retrench

Blessing Nyatanga

In another unprecedented turn of events, Triangle, a major sugar company has announced that it will engage in a Three phase retrenchment process as the economy bites. The large sugar producer announced on 14 January 2025 and indicated through a statement that the company is struggling to cope with its operating costs and has been largely affected by inflationary pressures, currency losses as well as an unabated increase of maintenance costs.

Major retailers like OK Zimbabwe and Delta have also aired their plight and indicated with grave concern how the operating environment has affected their operations. It is prudent to discuss the challenges that have confronted the sugar producer and compelled them to make such a sensitive decision.

The operating environment

Triangle has highlighted that the operating environment has been strenuous on their operations and this has increased their operating costs holistically. The company noted that they suffered from currency losses which emanated from exchange rate instability.

The period before April 2024 when the ZiG was introduced saw many companies reeling and incurring losses because the exchange rate was volatile. The instability of the exchange rate meant that companies would sell products at lower prices way beyond production costs. Currency volatility has been unsustainable in business parlance and as such Triangle has not been spared. Beyond the introduction of the ZiG stability has been a relative term.

The currency started off on a good note albeit it crashed by a significant 43  percent on 27 September 2024 when the interbank rates were adjusted from 13,56 to 24,4 to the dollar. This was detrimental to businesses who had incurred costs of production and has to battle with price re-alignment to break even and avoid losses.

Inability to claim VAT

The company has also noted that their inability to claim VAT on inputs after sugar tax was exempted from VAT and low competition from low cost duty free imported sugar had severely impacted their ability to sustain current levels of production. VAT is a significant expense for companies which stands to reason that not being able to claim it can increase overall costs. In addition, not claiming VAT has an adverse impact on cash flows.

It can lead to cash flow constraints as the company had to absorb an additional expense. To add to their plight, the company was struggling to compete against those who could claim tax, which translates to lower sales revenue. In a nutshell, these were the adverse effects on Triangle regarding their inability to claim VAT.

Working capital constraints

In a statement released on 14 January 2024, the company highlighted how they have seen profit margins decline significantly by 55 percent. This has emanated mainly from increasing manpower costs which have gone up by 133 percent as a proportion of revenue as well as debt that has risen to unsustainable levels. The figures suggest that, it has been a litmus test to generate positive cash flows for the company a condition which strains their working capital. The company has also struggled to access foreign currency and has been often compelled to access it at premiums thus increasing their costs.

The company’s working capital is also affected by the country’s economic environment, including high inflation, currency volatility and taxation. These factors increase the cost of production, making it challenging for Triangle Zimbabwe to maintain a stable working capital. Additionally, the sugar industry in Zimbabwe is facing declining production due to various factors, including drought, power outages and lack of investment. This decline in production further exacerbated working capital constraints for the sugar company.

What is the company’s solution?

In an attempt to save Triangles precarious state, their management have attempted various cost reduction measures and initiatives which have proved insufficient to stabilise the business. According to their statement, their plight is sorely emanating from economic and operational challenges. The company has resolved to implement a 3 phase retrenchment process to reduce workforce.

Triangle firmly believes that these stern measures will help the ailing giant to emerge from their financial quagmire and ensure going concern. It is imperative for the Government to address the financial environment, address currency stability issues and these are pertinent concerns that could save many organisations from going under.

Blessing Nyatanga is a Banker and Economic Analyst. He holds a Bachelors in Banking and Investment analysis. You can contact him on 0784909184/ blessnyatanga@gmail

 

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