PG suspends Zambia deal

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PG Industries, which is fighting to retire high-cost short-term debts by increasing the ratio of long-term borrowings, has suspended plans to set up an operation in Zambia, which received regulatory approval from the government of the country early last year.
The board and management of the country’s largest maker, supplier and distributor of construction materials hoped to “replicate the PG model” in the country with a timber-growing partner, before expanding its footprint to Mozambique and Malawi.
PG decided to freeze the deal in order to concentrate on recapitalising Zimbabwe operations, currently bedevilled by plant decay and a working capital crisis, in order to “re-launch into the region from a stronger home base”, Karen Waniwa, PG company secretary, said in the firm’s abridged full-year financial report to March 31.
The diversified construction company successfully secured $4,5 million in working capital for Zimbabwe operations in the last 12 months and plans to borrow an additional $10 million for Phase 2 of the capital projects.
It will need $500 000 more to restructure its stock of short-term debts to long-term, bringing its total debt obligations to $15 million.
“The board is aware of the cost of funding, and the structures being put in place will take these concerns into consideration,” said Waniwa.
“In the meantime the success of Phase I of the exercise will enable the group to leverage off its wide distribution network and its integrated manufacturing operations.”
PG, which brought forward a backlog of maintenance work from the hyper-inflation period, wants to sink part of the new debt into its concrete, glass and board operations, which require renovation or plant replacement.
The company’s fibreboard and tile plants are also in need of plant upgrade or complete overhaul.
The remainder of the loans will be committed to the re-tooling of the company’s truss-making plant as well as the re-stocking of its six operating subsidiaries, namely PG Building Supplies, DST, Johnson & Fletcher, PG Glass, PG Timbers, Zimtile and Msasa Timbers.
The investments are primed to boost the conglomerate’s plant capacity utilisation to above break-even point and equip it to meet the rising demand for construction products.
Key operations, PG Safety Glass and Fibreboard, closed the period running at 10% and 13% of installed capacity, respectively, consequently posting operating losses.
PG says it went into high– cost debt hoping to secure working capital funding for re-stocking as demand grew in step with the strengthening of the local operating environment.
The resultant interest burden, which started hurting in the second half of its financial year following a sudden spike in rates, has scuttled it out of the local credit market and pressured it into long-term arrangements meant to reduce and spread the interest risk.
By March 31, the total stock of interest-bearing debt had grown to $1,9 million from $56 000 the year before. Net finance costs for the period were $40,776.
During the review period, PG reported a full-year operating loss of $5 million without a comparative after all but one operation posted operating losses, led by the merchandising division, which accounted for $2,8 million of the loss. Despite strong demand, total group revenue for the 12 months group was only $23,8 million, as volumes remained depressed by low capacity utilisation, high plant downtimes and low throughput, all stemming from working capital shortages.
High staff and utility costs, repairs and maintenance and other cost pressures pared margins in the first half of the year.
PG’s total assets declined to $29,2 million from 33,1 million in 2009 after the company incurred an impairment loss on plant and equipment and investment property of $2,5 million.
Mozambique results have not been consolidated as yet.