Proplastics seeks to beef up working capital

PROPLASTICS Limited says the recently constructed US$8 million factory is fully functional, and the attention has now shifted towards beefing up working capital to sweat out the investment to its installed capabilities.

The company successfully commissioned a new state-of-the-art factory and automated mixing plant at its Harare manufacturing facilities in 2021.

The new factory and the automated mixing plant are housed in a complex spanning over 6 000 square meters of PVC and HDPE pipe manufacturing facilities.

The new manufacturing facility is expected to improve production capacity from the current 9 000 tonnes to 15 000 tonnes per annum and the new set up will allow Proplastics to meet domestic demand as well as exports into the Sadc region.

Gregory Sebborn, the group’s chairman in the company’s 2021 annual report, said the company’s failure to access adequate working capital was hampering the factory’s capacity.

“With the business and the general economic environment improving, and the recently constructed new factory and mixing plant fully operational, the focus is now on strengthening the Group’s working capital position.

“It is expected that demand for the Group’s products will continue to grow buoyed by the various sectors of the local economy,” he said.

He noted that the Reserve Bank of Zimbabwe (RBZ) foreign currency auction system has not been able to meet the company’s foreign currency needs hence it is looking at expanding its export market base to generate more foreign currency for working capital.

“The allocation of foreign currency from the Auction platform does not adequately cover the net requirements of the Group thereby causing operational challenges on the procurement of requisite raw material stocks.

“We urge the authorities to continuously review the current approach to this pertinent issue which has a fundamental impact on the performance of the economy at large,” said Sebborn.

He said due to shortage of working capital, the company’s borrowings for the period increased significantly with the debt to equity ratio now sitting at 16 percent.

The Zimbabwe Stock Exchange (ZSE) listed company manufactures and markets plastic pipes and fittings, specialising in the production of polyvinyl chloride (PVC), high-density polyethylene (HDPE), low-density polyethylene (LDPE) pipes and related fittings.

The pipes and fittings are manufactured for applications in irrigation, water and sewer reticulation, mining, telecommunications and building construction.

Sebborn said there is an upsurge in demand especially from the mining sector as well as other sectors.

He indicated that the optimisation of the Group’s working capital, in particular raw material stocks, will depend on foreign currency availability on the Auction platform as current allocations are well below the Group’s requirements.

“The Group has maintained sound relationships with suppliers, but there is risk of straining these if allocations remain inadequate and the settling thereof experience delays,” he said.

He added that the RBZ has recently provided some assurance that the auction backlog is to be significantly reduced and the auction made more relevant to the requirements of the market.

Sebborn said the Group’s new US$1 million 500mm line has since arrived and is already under commissioning.

“This line will undoubtedly address the demand for large bore PVC diameter pipes which is on the rise and significant orders for this product have already been received prior to commissioning,” he said, adding that the Group is now well positioned to capitalise on certain opportunities to widen its footprint in the Region and efforts are underway to investigate in detail these potential initiatives.

In terms of financial performance, the Group’s turnover grew 57 percent to $2,773 billion from $1,762 billion in prior year on the back of a 24 percent increase in volumes and taking cognisance of price adjustments due to the global increases in the main components of raw materials.

Sebborn said encouragingly, exports grew by 149 percent and contributed 11 percent to total turnover for the period under review.

“It is also important to note that a significant portion of the Group’s revenue was recorded at the auction rate, having been received in United States Dollars,” he said.

Sebborn said given the global raw material shortages, cost of sales rose by 48 percent from prior year.

As a result, the Group posted a gross profit of $933 million compared to $515 million in prior year.

During the year under review, Sebborn said overheads were contained to manageable levels and as a result, the Group recorded an EBITDA of $624 million compared to $442 million in prior year and profit before tax of $408 million compared to $279 million in prior year.

He said the statement of financial position remained strong with total assets amounting to $3,465 billion.

“The Asset base of the Group is fairly new and has been accounted for in the financial statements in terms of IFRS 13 (Fair Value Measurement). Directors are mindful of the need to constantly review the asset valuations in order to accurately reflect the worth of the investment in the business,” said Sebborn.