Chemco Holdings says it will rely on expensive borrowings through the first half of the year to counteract working capital challenges as the manufacturing, distribution and agricultural supplies company presses on with operations rationalisation.
During the full year to October 31 2010, Chemco sold Agpy through a management buyout and closed two loss-making divisions, Chemco Transport and Farm-a-Rama.
“Expensive borrowings and liquidity challenges will continue into the first half of 2011,” the company said in an abridged financial report for the period.
“Chemco will continue to rationalise the business model and enhance synergies within the TSL group.”
Since dollarisation in 2009, Chemco has relied on short-term borrowings to prop up the business, assuming a huge interest burden. During the review period, the company’s stock of interest-bearing loans and borrowings increased to $745 669 from $220 000 in the comparable period in 2009.
It also closed the period with a new overdraft position of $72 738.
Interest paid also increased to $359 888 from $15 272.
For the full year, Chemco reported an operating loss of $1,4 million from continuing operations, namely ABS, TS Timber, Agricor, Agricura and TSL.
The Zimbabwe Stock Exchange (ZSE)-listed agriculture chemicals company said sales improved relative to the comparable period the year before, but were weighed down by increased competition, inadequate working capital and significantly lower margins.
“Agricura posted a disappointing loss for the year under review, while the parent company Agricor Limited posted a small profit after taxation. ABS registered a trading loss in the year under review,” said the financial report.
“Expenditure levels were high, mostly driven by staff costs and utility charges.”
Turnover for the group rose by 35% to $7,4 million from $5,5 million in 2009.
TS Timber registered an improvement in sales, but cost pressures trimmed margins resulting in a small profit relative to the year before.
Chemco is upbeat that retail operations for the group and Agricura have the potential to generate profits for the company.
“Plans are underway to improve plant capacity utilisation at Agricura and renew links to competitively priced raw materials suppliers.”
Capacity utilisation at Agricura’s crop chemicals plant was estimated at 25%-30%.