Proplastics in H1 loss amid weak demand and financial struggles

HARARE – Weak demand, high costs, an impairment and a substantial tax expense saw Proplastics report negative earnings in the half year to June 30, 2024.

According to the company’s interim results, a loss of US$71 875 was reported from a profit of US$561 298. The company’s revenue fell 18% to US$8.58 million, down from US$10.48 million in the previous year, reflecting a decline in demand for its products amid economic instability.

Sales volumes declined by 8% compared to the prior period while export sales contributed only 1% to total sales, highlighting the challenges faced in the market due to risk and competitive issues, as well as the impact of the 25% foreign currency surrender policy and the unavailability of foreign currency on the formal market.

The results highlight a decrease in gross profit, which stood at US$2.49 million compared to US$3.34 million in the prior year. This decline was attributed to a combination of reduced sales and increased costs associated with production. The cost of sales decreased to US$6.09 million, but not enough to offset the revenue drop, leading to a squeezed profit margin.

Administrative expenses also saw a reduction, totaling US$1.54 million down from US$1.77 million in the previous year, as the company implemented cost-cutting measures to navigate the tough market conditions. However, the impairment loss on trade receivables of US$101 628 further impacted the bottom line.

Current assets amounted to US$8.1 million, down from US$8.5 million. The decrease in current assets was primarily due to a reduction in inventories and cash and cash equivalents, which fell to US$267 675 from US$376 994. This decline in cash reserves could pose liquidity challenges in the near future.

The company’s cash flow statement revealed a net cash outflow from operating activities of US$380 095, primarily due to significant tax payments and interest expenses. Despite these challenges, Proplastics managed to generate cash from financing activities, securing US$514 529 through new borrowings, which helped mitigate some of the cash flow pressures.

Looking ahead, Proplastics remains cautiously optimistic. The company anticipates that government and non-government initiatives aimed at mitigating the effects of the drought, such as community-based irrigation schemes, will bolster demand for its products. Additionally, the civil construction industry continues to show strong demand, which the company expects to capitalize on in the second half of the year.

Proplastics expects to enhance product availability in the second half of the year. This improvement is attributed to the installation of additional equipment aimed at augmenting current capacity and factory efficiencies. The company is optimistic that these initiatives will allow it to better meet demand for its products.

The company has completed the installation of a solar plant, expected to generate approximately 50,000 kilowatt-hours of energy monthly, significantly reducing electricity costs and generator fuel consumption. This initiative is anticipated to yield substantial savings in the latter half of the year.

No interim dividend was declared for this period.

Weak demand is set to be a trending phrase on manufacturers of industrial products this H1 reporting season as it mirrors the challenging macro-economic performance. Companies have had to be aggressive on risk management frameworks to identify and mitigate potential risks associated with currency fluctuations, supply chain disruptions, and market volatility with no real pick-up signs for the remainder of the year.

While the company has managed to maintain a reasonable current ratio and has reduced its total liabilities, the decline in total assets and equity, coupled with negative earnings, reflects a challenging financial position. The company will need to focus on improving revenue generation and managing costs effectively to enhance its financial stability moving forward. On the ZSE, the company, which has been subject to changes at shareholder level, sits on market cap of about US$36 million. -finx