- Proplastics relied on internally generated foreign currency to address foreign obligations
- Auction market remained unreliable during the period
- Proplastics managed to maintain a manageable gearing ratio and recorded a profit for the year
Harare- Plastics manufacturer Proplastics Zimbabwe Limited has effectively leveraged internally generated foreign currency to address its foreign obligations, streamline internal operations, and reduce its gearing ratio. Despite the persistently unreliable foreign currency auction market, as highlighted in the company's latest full-year financial results for the period ended 31 December 2023, Proplastics resorted to utilising its own resources due to the market's unreliability.
Initially introduced in June 2020 as a solution to ease foreign currency challenges faced by companies and mitigate exchange rate volatility and inflationary pressures, the foreign currency auction market fell short of expectations. Despite the anticipated settlement period of two weeks, the system's unsustainability and lack of reliability often extended the settlement period to 30 days or even exceeded it.
Notably, despite facing inadequate allocations, the settlement process remained a challenge.
However, by utilising internally generated funds, Proplastics managed to maintain a manageable gearing ratio of 1.5%, enabling the company to explore borrowing options for funding its operations.
Nevertheless, this approach had a dual impact, resulting in a reduction of the group's total assets from US$24.6 million in 2022 to US$22.8 million as available resources were utilised to service liabilities.
While Proplastics encountered forex challenges that affected its operations, the company was also affected by recurring electricity blackouts. These blackouts led to production delays and increased operating costs due to the utilisation of backup generators. In fact, the company experienced a loss of 47 production days, resulting in heightened production costs.
To address this issue, Proplastics plans to implement a solar system, scheduled to commence in the first quarter with completion expected within six months.
Despite the aforementioned challenges, Proplastics achieved a profit of US$519.877 thousand, a substantial increase from US$164.482 thousand in 2022. This growth can be attributed to the company's revenue, which rose from US$17.444 million to US$21.289 million. However, the group incurred significant tax expenses of US$863.460 thousand, representing an increase from the previous year's US$728 thousand.
Analysis:
Proplastics' trading performance highlights the challenging operating environment in Zimbabwe, contradicting the narrative of being "open for business" touted by the government. Issues such as electricity production, inflation control, foreign currency availability, and tax relief for companies continue to pose significant obstacles.
Despite Proplastics not being heavily involved in competitive markets, a profit of US$500 thousand from revenues of US$21 million and a PBT of US$1 million indicate a difficult working environment. The company faced difficulties not only due to electricity blackouts but also in acquiring foreign currency. Other prominent companies, including National Foods and CBZ Holdings, face similar challenges. The government must adopt a realistic approach to taxation, considering factors such as electricity supply, costs, foreign currency availability, exchange rates, and inflationary trends. Failure to address these issues may deter foreign investors from considering Zimbabwe as a profitable business destination.
However, Proplastics still has considerable work ahead to enhance profitability. While the company benefits from limited competition compared to entities like OK Zimbabwe, National Foods, and Axia, which generate net profits exceeding US$5 million in six months, management must diligently manage costs and explore alternative revenue streams. Diversification of operations should also be considered.
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