- The group is targeting to install a solar system in the remaining half year to address power challenges
- Turnover increased to over US$10 million
- 21 days were lost due to power outages
Harare- Proplastics Limited Zimbabwe has set its sights on installing a significant solar generation project. The main objectives of this endeavour are to increase the availability of power supply, reduce operational downtime, and lower production costs. Based on the Group's half-year financial report for the period ended on June 30, 2023, the project is scheduled to be implemented over the next six months, with the aim of completing it by the end of the Group's fiscal year. However, specific details regarding the magnitude of the project have not been disclosed by the company.
In the pursuit of achieving power independence, Proplastics is following in the footsteps of companies like Zimplats, RioZim (which are also in the process of installing and courting solar plants), and Caledonia, which has already successfully installed a 12 MW solar plant. Caledonia's solar plant currently meets 27% of its power needs. By joining this group of companies embracing solar energy, Proplastics aims to reduce its reliance on the national power grid and enhance its own power generation capabilities. This move towards sustainable energy sources reflects a growing trend among companies in Zimbabwe to mitigate the challenges posed by power shortages and contribute to a greener and more resilient business environment.
The unreliability of the grid has led to frequent power outages and disruptions, negatively impacting businesses' operations and productivity. Solar power provides a sustainable and reliable alternative, allowing companies to generate electricity on-site and minimize the expenses associated with generator usage.
Proplastics has been significantly affected by power outages, leading to a notable increase of 23% in its cost of sales. This increase was due to two factors: the expenses incurred from using generator backup power and the higher prices of raw materials acquired during the Covid-19 period. These raw materials, which were purchased at elevated costs, are now being fully utilized in production.
As a result of the increased cost of sales, Proplastics' gross profit margins have remained static compared to the previous period. Despite efforts to manage costs, the impact of power outages and the associated expenses have affected more gains in profitability efficacy. This, coupled with the higher-priced raw materials, has put pressure on Proplastics' profitability.
The Group experienced a significant loss of production days, amounting to a total of 21 days. This includes instances where factories had to be temporarily closed. The loss of production had severe impact on a company's financial performance. Not only does it directly affected the quantity of goods produced and available for sale, but it also disrupted the supply chain, delaying order fulfilment, and potentially leading to dissatisfied customers. This, in turn, had resulted in missed sales opportunities and revenue loss.
If the installation of the solar generation project is successful and combined with the new investment in the 500mm production plant, we anticipates increased profitability in FY2023. One of the main contributing factors to this anticipated improvement is the reduction in costs associated with power shortages. Currently, the company relies on generators, which consume significant financial resources. By shifting to solar power, Proplastics aims to mitigate these costs and achieve greater cost efficiency.
In terms of revenue, during the period under consideration, a turnover of US$10.5 million was generated. Of this amount, the PVC plant accounted for 47% of the income, which is nearly half of the total revenue. However, it's worth noting that in comparison to the same period last year, where US$8.5 million was generated, there has been an increase in revenue.
This increase in revenue, coupled with the expected cost reductions from the solar generation project and the new production plant investment, sets the stage for improved profitability for Proplastics in the fiscal year 2023.
The Group has made a significant change by reporting its financials in US dollars, making it the first company listed on the Zimbabwe Stock Exchange to do so. Despite facing challenges related to power supply, the Group managed to reduce overhead costs by 13% compared to the previous period. This was achieved through the Group's ongoing efforts to contain costs.
In terms of profitability, a profit before tax of US$1 million was recorded, a notable increase from the US$105 thousand recorded in the same period last year. The EBITDA (earnings before interest, taxes, depreciation, and amortization) improved to US$1.6 million, up from US$811 thousand in the previous period. As a result, the Group achieved a profit after tax of US$561 thousand, a significant improvement from the negative US$723 thousand in the prior period.
The statement of financial position remained strong, with total assets amounting to US$27 million. This indicates a healthy financial position for the Group. The current ratio, which measures the ability to cover short-term liabilities with short-term assets, closed the period at 1.28. This suggests that the Group has sufficient current assets to meet its short-term obligations.
The gearing ratio remained very low at 1.4% as the Group extinguished the expensive ZWL loans at the beginning of the year. The low gearing will provide some leverage as the Group seeks to bolster its working capital requirements. The Group closed the period with cash and cash equivalents amounting to US$282 thousand. Amounts outstanding from the auction system were accounted for under receivables, and not cash and cash equivalents.
Proplastics Limited is a company based in Zimbabwe that specializes in the manufacturing and distribution of plastic pipes, fittings, and related products. The company produces a wide range of plastic piping solutions used in various applications, including water supply, irrigation, plumbing, and infrastructure development. Proplastics serves diverse sectors such as agriculture, mining, construction, and utilities by providing high-quality plastic products that meet industry standards. The company is known for its commitment to innovation, sustainability, and customer satisfaction in the plastic manufacturing industry.
Equity Axis News
