FURNITURE retailer Pelhams Limited is considering a long-term funding structure to expand "securitisation" of its debtors' book and raise working capital. Last year, the company required about US$5 million for recapitalisation as well as funding its operations.
Group chairman Mr Oliver Chidawu in a statement for the full financial period ended March 31, 2012, said the fund-raising exercise has been pending since 2009.
"To augment the securitisation structures that have sustained operations to date, the company will require a long-term funding structure," he said..
This means that Pelhams is seeking low-cost long-term funding, like a three-year long-term paper whose costs would be represented on their interest on credit.
The group says in the absence of sustainable funding, securitisation of the debtors' book, which stands at US$10 million, funded operations and raised its level of trading.
Since 2009, Pelhams has been surviving on expensive short-term debt. Yesterday, analysts said the company is likely to be aggressive in securing funding only after resolving its outstanding shareholder issues.
Mr Chidawu said the issue was still outstanding.
"As previously acknowledged and advised, resolution of the shareholder issue remains outstanding and will be formally communicated in due course, once finalised," he said.
Last year, TN Asset Management bought about 36 percent of Pelhams on the market when Mr Chidawu failed to settle a US$3 million loan from businessman Mr Jayesh Shar. Pelhams shareholders opted for debt because rights issues have failed in the market due to lack of cash while equity would result in dilution of major shareholders.
During the period under review, revenues grew by 95 percent to US$16,7 million. This was against an expenditure of US$12,2 million in cost of sales.
Operating profit for the group stood at US$4,2 million profit before tax and profit for the year was US$1,5 million compared with US$121 831 in the comparable prior period.
Pelhams debtors' book recorded a 197 percent growth while net finance income was at US$2,3 million, contributing significantly to overall profitability, compared with US$273 000 for last year.
During the period under review, Pelhams increased credit terms to 24 months from 18 months, in view of low disposable incomes on the market.
Lending by financial institutions has remained minimal as a way of spreading risk. Pelhams says this strategy underpinned the sales growth of 95 percent against a prior year comparative of 115 percent.
"During the year under review, unit sales more than doubled and were driven mainly by credit sales which grew by 127 percent," said Mr Chidawu.
He said local production costs had a negative impact on the margin, which were reduced to 27 percent against 30 percent in the prior year.
Due to lack of funding, the group's sales mix for the year was skewed towards locally manufactured products with a lower margin relative to imports.