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Legacy Debts Chokes MedTech Holdings

Zimbabwe Stock Exchange (ZSE) listed manufacturer of body lotions and healthcare products, Medtech Holdings Limited (MHL) says its inability to settle legacy debts of ZAR25,5 million has left the company’s going concern status hanging in the balance due to supply cuts.

The company experienced massive stock outs in the year ended December 2020, because of challenges in sourcing replacement stock of raw materials and goods due to stop supply from foreign creditors.

Key local suppliers are demanding prepayment, which leaves the company in a precarious position, the company said, in its 2020 trading update.

“Uncertainty related to payment of legacy debt affects our foreign credit and with no definitive position this will result in serious challenges and our ability to continue in the future,” it said.

“The Group owes legacy debts amounting to ZAR25,5 million to foreign creditors. Of the validated debts, ZAR24,3 million is yet to be paid while appeals have been lodged for ZAR2,1million. At this stage, the Group is unsure when payments will be made in full for the debts validated which owe and when a response will be received for appeals lodged,” said the company.

The Group had an inflation adjusted net exchange rate loss included in the net finance costs for the year of ZW$160,522,960 which was mainly due to the translation of monetary liabilities (mainly foreign creditors) during the period.

However, there is a possibility that these losses may reverse if the legacy debts are dealt with by the Reserve Bank of Zimbabwe (RBZ) as promised, said the company.

Nevertheless, delays in the payment of legacy debts limit the Groups ability to renegotiate foreign credit resulting in possible continuation of stock-outs in the short to medium term.

Group sales volumes decreased by 5 percent due to the aforementioned factors compounded by the stance by management to restrict sales due to the continual devaluation of the debtors book with aim of preserving shareholder value.

The covid-19 lockdowns also led to delays in restocking.

Group revenues for the period however increased by 12 percent from ZWL$313,684,868 in 2019 to ZWL$352,850,105 in 2020.

The Group posted an inflation adjusted profit before tax for the year of ZWL$66,682,115.

Given the Group’s working capital needs, and the Group’s net current liability position, the Directors resolved not to declare a dividend.

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