Legacy debt cripples Medtech

LISTED firm, Medtech Holdings Limited (MHL) says uncertainty around a legacy debt amounting to ZAR27,8 million has resulted in cuts in supply and stockouts.

BY TATIRA ZWINOIRA

MHL manufactures and distributes a wide range of products for the healthcare and consumer sectors.

In a statement accompanying its financial performance report for the year ended December 31, 2019, released last week, MHL chairperson Rose Mazula said the extent of liabilities owed to foreign creditors had left the group in a precarious position.

“The group owes legacy debts amounting to ZAR27,8 million to foreign creditors. Some of the debts have been validated by the Reserve Bank of Zimbabwe while appeals have been put in for others. At this stage, the group is unsure when payments will be made for the debts validated and when a response will be received for appeals lodged,” she said.

“Delays in the payment of legacy debt have resulted in cuts in supply and stockouts which is one of the contributing factors to the decreased sales volumes. For prudence, these foreign creditors have been restated to the interbank rate of $16,77 at end of the reporting period.”

The debt comes as MHL imports a significant component of its inventories from South Africa-based suppliers.

As a result, exchange rate difference arose because of the exchange rate between the South African rand (ZAR) and the United States dollar during the year under review when translating from ZAR to the greenback.

Mazula said the inflation-adjusted net exchange rate loss included in the net finance costs for the year was $62 227 944 mainly due to the translation of monetary liabilities (mainly foreign creditors) during the period.

However, she added that these losses may be reversed if the legacy debts are dealt with by the central bank.

“As such, the determination of amounts recognised in the financial statements as accounts payable and exchange rate gains/losses were considered a key audit matter,” MHL’s independent auditors, AMG Global Chartered Accountants Zimbabwe, said.

In terms of its financial performance for the 2019 period, in inflationary terms, MHL recorded a nearly 31% drop in revenue to $70,48 million from a 2018 comparative of $101,46 million.

The drop in sales was due to the stance by management to restrict sales due to the devaluation of the debtors book with the aim of preserving shareholder value; decreased consumer spending as income levels have not kept up with rising general price levels and this has caused aggregate demand to remain subdued; and stockouts because of challenges in sourcing replacement stock of raw materials and goods due to stop supply from foreign creditors because of overdue balances.

Mazula said the reduced demand translated to a 70% decrease in total sales from its manufacturing, medical and fast-moving consumer goods segments.

As a result of the decreased revenue, profit after tax was significantly reduced at $868 907 at the end of 2019 from $12,53 million in the comparative 2018 period.

Despite this, the basic earnings per share rose to 0,272 cents in the period under review from a 2018 comparative of 0,219.

MHL’s share price has performed well on the main bourse registering a 1 018,42% increase year to date, making it the fourth best performance on the Zimbabwe Stock Exchange.

In the outlook, Mazula said: “The trading environment and macro-economic conditions remain volatile. The full impact of COVID-19 is yet to be felt but will undoubtedly have a significant adverse impact on the Zimbabwean economy.”

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