Debt exposes Proplastics to exchange rate risks

15 Sep, 2021 - 00:09 0 Views
Debt exposes Proplastics to exchange rate risks

The Chronicle

Oliver Kazunga, Senior Business Reporter
LEADING piping material producer, Proplastics, has accumulated a foreign debt backlog amounting to US$1,7 million, which is exposing the company to exchange rate risks and could strain relations with suppliers.

The company is pinning hopes on securing foreign currency from the Reserve Bank of Zimbabwe (RBZ) auction system, which has seen more than 4 000 businesses benefitting since its inception in June last year.

With the manufacturing concern noting an improved business environment ahead, amid plans to ensure consistent supply of raw materials, the availability of forex will be critical, said the company in a statement accompanying its financial results for the six months ended June 30, 2021.

However, delays in settling allocated amounts at the forex auction could result in the worsening of the group’s foreign currency exposure.

“The backlog at the end of the period stretched to almost two months and arrears to foreign creditors stood at US$1,7 million,” said the company.

“The position exposes the group to huge exchange rate risks as well as negative impact on supplier relations.”

Given the positive economic projection this year and going forward, Proplastics said it expects that demand for the group’s products will continue to firm, and product supply gaps minimised into the second half of the year.

“Despite sound supplier relationships and arrangements, raw material acquisition to meet rising demand will depend on foreign currency availability through the auction system,” it added.

The new PVC 500mm extrusion production line is expected at the end of the year with commissioning in the first quarter of 2022, said the company.

It is hoped that the new line would help address the demand for large bore PVC diameter pipes, which continues to grow and will increase production capacity.

During the period under review, the manufacturing entity’s turnover grew by 120 percent to $889 million from $404 million in the prior period on the back of a 71 percent increase in sales volumes.

Notably, exports grew by 240 percent and contributed 11 percent of total turnover for the period under review.

“A significant portion of the group’s revenue was recorded at the interbank rate having been received in United States dollars,” said the company.

“Cost of sales increased sharply given the global raw material shortages, which in turn resulted in sharp upward price adjustments.”

Consequently, the group recorded a gross profit of $257 million compared to $209 million in the prior period. The group’s total assets remained strong at $2,1 billion while borrowings remained minimal with a debt-to-equity ratio of two percent.

The current ratio was at 1,9 while the group closed the period with cash and cash equivalents of $98 million. —  @okazunga

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