Latest Masimba results show the rewards and the risks for contractors working on Govt and mining projects

A stretch of the Masvingo highway done by Masimba: contractors facing major risks

The latest results from Masimba Holdings show the highs and lows that construction companies face when they take on government projects – and the emerging risks from the collapse in mineral prices.

Participation in government contracts has been good business, helping companies increase capacity. But delayed payments for projects are eating into their profits. At the same time, mining companies, which have delivered strong orders to construction companies over the past three years, are slowing down expansion projects due to a global metal price crash.

Masimba is one of the largest contractors on government projects, taking part in projects such as the Masvingo highway. Such projects, alongside other private contracts from mines and property developers, helped the company more than double its order book from US$104 million in 2022 to US$248 million last year. Masimba also increased investment in plant and equipment to satisfy the orders, and even opened a new quarry stones unit.

Last year, revenues rose to US$53.8 million from US$49.8 million in 2022. However, things turned in the last quarter. First, the government and private firms slowed payments to contractors, forcing Masimba to go slow on projects.

“The growth in revenue volumes was attributable to a strong and firm order book at the beginning of the year. However, growth declined in the fourth quarter as a conservative approach was taken by the group to align work execution in line with clients’ payment patterns,” Masimba says in its full-year results.

As a result, pre-tax earnings for the year fell by 11% to US$12.6 million from US$14.2 million in 2022. The decline “was attributable to slow down of works in the fourth quarter due to delayed payments and liquidity constraints which negatively impacted project efficiencies.”

Masimba was also affected by government’s insistence on paying in Zimbabwe dollars, despite most of the economy using US dollars.

“Profitability of the group was impacted by the sub-optimal currency payment mix on most of the projects that were not in line with the increased dollarisation of the economy,” the company reports.

Masimba spent US$4.2 million on capital expenditure to meet demand. While the order book has more than doubled, it is likely many of the projects will be put on ice. The government may divert some funds to drought relief. Masimba’s private clients, among them platinum miners, have also put major expansion projects on hold.

Says Masimba: “The execution of this order book may be negatively impacted by the effects of the El Nino weather phenomenon and the declining mineral prices. These factors could lead to the Government prioritising food relief over infrastructure development and may result in capital expenditure budget cuts in the private sector.”

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