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MedTech gross profit down 16%

Business
The decline in profit margin was also caused by an increase in manufactured products at a lower margin.

PRIVATE equity firm BridgeFort Capital Limited says sales at its subsidiary MedTech declined by 2% during the financial year ended December 2023, while gross profit fell 16% due to a reduction in higher margin distribution sales, among other constraints.

The decline in profit margin was also caused by an increase in manufactured products at a lower margin.

In terms of income statement performance as measured by the change in the equity value in United States dollar, MedTech incurred a loss of about US$260 000 with US$130 000 of this being attributable to the Class A Portfolio.

The Class A portfolio includes 50,1% of MedTech Distribution and Chicago Cosmetics, a 51% subsidiary of MedTech Distribution, jointly referred to as MedTech.

The Class B portfolio comprises an effective 50,1% of the land registered in the name of MedTech Distribution which was last valued at US$200 000 for 100%.

The land has been for sale for some time and a sale was concluded after year-end giving a net realisation attributable to the Class B portfolio of about US$120 000 after costs.

Chicago Cosmetics made a small profit, while the distribution business suffered from exchange losses on Zimbabwe dollar (now Zimbabwe Gold or ZiG) balances. The business struggled to adequately hedge local currency debtors and experienced significant delays in payments from the key supermarket customers.

“This loss highlights the unsustainability of sales to the formal retail sector in ZWL (Zimbabwe dollar) when this can’t be hedged with bank borrowings,” company secretary Michael Nicholson said.

“Unfortunately, MedTech Distribution is a small supplier of slow-moving products and has not been able to improve on the credit terms or the currency of invoicing.”

During the year under review, a payment of US$170 000 was received from the central bank for legacy debts, which provided some much-needed relief for MedTech and its suppliers.

“Foreign currency purchased through the auction last year amounting to US$60 000 remains unpaid by the Reserve Bank of Zimbabwe. Since the auction was closed for the holidays in December 2023 it has not reopened although exporters continue to surrender 25% of their proceeds,” he said.

Central bank governor John Mushayavanhu last week said that  the auction system has been disbanded. He said all outstanding auction system allotments would be converted to a two-year ZiG — denominated instrument at an interest rate of 7,5% per annum

“The withholding tax on payments to non-compliant businesses/people of 30% is excessive and may be more effective if it reverted to 10%. The imposition of VAT [value-added tax] on supplies such as chicken and beef, among others, has been a boon for the informal sector and threatens the survival of formal sector players.”

Nicholson said the year has started off slowly with many businesses reporting reduced volumes. Electricity generation is a concern and the price has moved from being unrealistically cheap to being expensive — much like City of Harare rates, bills and various other charges.

The executive said the transaction with Diaspora Kapita, including the sale of MedTech, is a priority for management and receiving their undivided attention.

He said the audited December 2023 results for the target companies are expected to be received soon, which will enable finalisation of agreements and documentation.

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