HOME improvements retailer, Powerspeed Electrical Limited, is struggling to secure capital to fund its expansion drive, it has been revealed.
The market is facing a severe liquidity crunch on the back of hawkish policies by Treasury and the central bank to preserve the value of the local currency, the Zimbabwe Gold.
However, analysts have warned that the thrust has dried up liquidity. Companies say they are struggling to increase production, funding existing projects and expanding operations.
“Access to capital to fund our expansion programme has been a significant problem. Zimbabwean banks and financial institutions continue to struggle with liquidity and cannot be relied on to provide capital while interest rates remain inordinately high driven by perceived country risk,” Powerspeed chairperson Victor Gapare said in the firm’s annual report for the period ended September 30, 2024.
“Another problem is the uncertainty over the functional currency and the future use of the US dollar, this prevents any form of long-term borrowing which is vital to fund construction and expansion programmes.”
Despite the capital constraints, the group did not have any unfulfilled capital commitments, nor did it have contingent liabilities as of September 30, 2024.
Powerspeed had US$1,84 for every dollar of short-term debt, indicating the firm was in a position to cover immediate obligations.
“The group’s capital management objectives are designed to ensure the group’s ability to continue as a going concern and to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk,” Powerspeed said.
- Liquidity crunch slows Powerspeed expansion plans
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“The group monitors capital based on the carrying amount of debt finance as a portion of the group’s total debt plus equity finance as presented on the face of the statement of financial position.”
Powerspeed seeks to maintain a debt-to-capital ratio of 1:2.
“This is in line with the group’s covenants resulting from the debt finances it has taken out. The group sets the amount of debt capital in proportion to its overall financing structure, that is, equity and financial liabilities,” Powerspeed said.
“The group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets.”
To maintain or adjust the capital structure, Powerspeed may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt.
Overall financing for the year ended September 30, 2024, was nearly US$60 million, up from the prior year’s US$51,19 million.
Garape said despite the continuous problems facing the firm’s operations daily, the company remained committed to pursuing excellence in all endeavours.
“We firmly believe that our diligent drive for sustained improvement is the only thing that will enable us to maintain our position as the leading hardware supplier in Zimbabwe,” he said.
“Our ability to source products from the best global suppliers allows us to deliver exceptional quality and competitive pricing to our customers. We continue to rely on this strategy to increase our market share, even in an environment heavily biased towards informal businesses.”
Gapare said the firm believed there was no alternative to offering its customers excellent service and value for money, but also, that by doing so, it would retain existing customers and capture new customers.
“Further, this growth in market share will drive our future profitability, despite the difficult economic environment,” he said.
