AGRICULTURAL equipment dealer, Zimplow Holdings Limited, requires more than US$36 million annually to meet its foreign exchange obligations, an official has said.
The group has been utilising internally generated foreign currency resulting in a gearing ratio of 3,9%, according to chief executive officer Vimbayi Nyakudya, who spoke to businessdigest on the sidelines of an analyst briefing on Tuesday.
A gearing ratio is a general classification describing a financial ratio that compares some form of owner equity (capital) to funds borrowed by the company.
Companies use it to prevent overtrading in times of necessity.
“We wanted to borrow late last year to further extend our capacity, in particular stocking up and making sure that we resolve the supply chain bottlenecks. Last year, we were over three months late in terms of the delay of remittances of foreign currency to our suppliers,” Nyakudya said.
“We were facing some challenges with supply chains as the eastern Europe conflict affected our supply chains. But now that those things have sort of decimated, we have built up that strength and instead of borrowing we use what we have.”
Nyakudya said the funds have been used for projects, such as the launch of new business units like Tractive Power Solution, expanding the factory capacity at Mealie Brand and Trentyre.
“So, in terms of those particular projects, we have been running on internal financing. We didn’t borrow. On a monthly basis we require over US$3 million and if we can’t generate it, we have to go to the foreign currency auction system. To a larger extent, the auction market has worked, considering the initiatives that have been put in place,” he said
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Nyakudya said the group had come up with initiatives to ensure the protection of shareholder value, which include reducing credit facilities with its customers and focusing on fast moving lines.
“We have reduced credit facilities with our customers. We were extending as much credit to our customers but given the challenging environment of reduced liquidity, we have since scaled down to cash transactions,” he said.
“Over and above, we have been focusing much more of our inventories on fast moving lines. We have been also having prepayments with our suppliers so that they hold our money and as and when we need to draw down, we will simply do so. We can at least pivot within a month or a month and half, unlike the three months if we go the auction way.”
The company recently announced its intention to list on the Victoria Falls Stock Exchange (VFEX) after suffering a US$60 million value loss on the Zimbabwe Stock Exchange (ZSE).
The loss in value is owing to the depreciation of the Zimbabwe dollar.
This fall translated into Zimplow’s market capitalisation falling by a whopping 88,67% in real value from its end of year 2021 valuation.
Several companies have since delisted from the ZSE and migrated to VFEX. These include Padenga Holdings, Bindura Nickel Corporation, National Foods Limited, Simbisa Brands, African Sun, Axia Corporation, Caledonia Mining Corporation, Innscor Africa, National Foods Holdings and Seed Co International.
