Zimplow Holdings Limited (ZIMW.zw) 2022 Abridged Report
The financial year 2022 was a challenging year for Zimplow given the difficult trading environment and termination of the caterpillar dealership in September 2022. The discontinuance of Barzem operations resulted in Group profitability swinging from an operating profit position to a loss before tax of ZWL$1bn, caused by provisions recorded of ZWL$7.4bn as listed below;
- Stock Write Downs ZWL$6.4bn
- Exchange losses ZWL$0.5bn
- Retrenchment costs ZWL$0.5bn
The board is following through on protecting shareholder value by acquiring Barloworld’s 49% shareholding in Barzem at a discount in line with the remedies provided in Barzem’s shareholder agreement.
Overall, the continuing operations recorded a resilient performance which we are now building on going into FY2023.
The Group started the year on a positive note, with strong demand being experienced on all our 3 segments. However, as the impact of the drought experienced in the second half of the FY2020/21 season significantly slowed down demand of the agriculture equipment products. The monetary measures and the general reduction in liquidity to tame the import inflationary pressures, caused demand for capital equipment especially the agricultural segment, to dry up.
In the previous years, when the agricultural segment does not perform, the Group has taken advantage of the diversified structure. The mining and construction equipment would perform, and given the strong metal and mineral prices, FY2022 had been projected to be a strong year before the termination of the Caterpillar distributorship by Barloworld.
Whilst there was growth in the logistics and automotive segment, the performance recorded was not enough to cover the gap caused by the termination of the CAT dealership as initially projected.
REVIEW OF OPERATIONS
Agricultural Equipment Cluster
Export sales performance anchored the business unit’s FY2022 volumes growth. Implements sold in the export market were 36% ahead of prior year with the local market performing at 16% below prior year. The same trend was also observed on hoes and implements spares where sales volumes grew by 23% and 34%, respectively against prior year.
Retooling and capacity expansion continues in earnest as the business unit seeks to expand its product range to cater for small to medium holder farmer mechanisation.
Following the peak performance of FY2021, tractor volumes reduced by 15% with a shift towards the higher horsepower range. Tractor implements volumes continued to grow with a 4% increase from prior year. Engagement with key suppliers has been a priority in order to position Farmec’s offering to our customer better. In addition, the efforts to have a better response rate and customer experience has seen the service hours growing during the period under review by 32%.
LOGISTICS AND AUTOMOTIVE CLUSTER
Truck and bus volumes grew by 88% and 300% compared to prior year. This was mostly driven by the improved supply chain as the business unit finally delivered on long outstanding orders. As a result of the fleet replacement, there was reduced fleet maintenance business compared to prior year, with parts and hours sold dropping by 11% and 5% respectively. With internal reorganisation complete, as well as improvements in supply chain, the business unit is poised to grow.
Good Year new tyre sales improved by 2% during the year despite the internal reorganisation and supply chain gaps. The business unit is expected to complete the facelifts and branding of its branches towards end of H1 FY2023 to set Trentyre onto a new trajectory. The optimisation of the retreading factory started to bear fruits with a 40% growth in retreads produced. Management will continue to follow through on progress with Logistics and Automotive Cluster to ensure stability in performance in order to reach Group targets, with respect to people, sales volumes and working capital allocation.
MINING AND INFRASTRUCTURE EQUIPMENT
Barzem/Tractive Power Solutions (TPS)
The Group has evolved from ZEMCO, Barzem and now TPS to cater for Zimbabwe’s earth moving requirements. We have the capacity in terms of infrastructure, people and access to capital. Given the experience in CAT, the Group is committed to provide a superior service from single unit owner to large fleet operators.
During the transition from Barzem to TPS, the Group has secured affiliations and accreditations with key suppliers to be able to continue looking after our major customers’ huge fleet from an earth moving equipment perspective. This has assisted the business unit to secure service level agreements, repair and maintenance contracts with some of the huge fleet operators – amassing the scale in short space of time, required to provide effective supply chain solutions and costs effective maintenance strategies.
The instability of the grid has caused demand for alternative power, gensets from Powermec in particular, grew by 16% and service hours by 44% against prior year. The business unit continue to provide solar power Installations to complement the alternative power business for selected customers. During the year, solar power plants installed were 116% more than to prior year.
During the year, the business matched prior year performance in terms of volumes. However due to pressure on margins, operating profit was down 14% compared to prior year.
The Group has consistently paid dividends over the past 5 years. Given the plans to reorganise the Mining and Infrastructure Equipment cluster, the board decided not to declare a dividend for the period under review.
OUTLOOK AND STRATEGY
The Group will follow through on its strategy to position the Group as a one stop shop for equipment, parts and service. Management will follow through on sustaining the key initiatives (as listed below) undertaken during the year under review as we go into 2023;
- Extracting the efficiencies and synergies in the new structure, to deliver more sustainable results. Significant costs savings are expected after full implementation of the restructuring process and the Group restored to peak business levels.
- Getting the newly introduced business unit, Tractive Power Solutions (TPS) to gain the targeted market share in earth moving equipment, parts and service supply to customers. TPS is establishing itself as the go to partner for technical solutions such as repair and maintenance contract (or onsite solutions) for huge fleet owners as well as workshop solutions given the Group’s expansive back infrastructure.
- Driving resilience in the two leading tractor brands under Zimplow, Massey Ferguson and Valtra by running them under separate business units, Farmec and Valmec respectively. In addition, there has been a deliberate follow through on the expansion of the product range at Mealie Brand to include small scale mechanisation implement for 20Hp to 50Hp Tractors including 2WT range.
The Group is committed to its strategy of stabilising the Logistics and Automotive cluster, building resilience in the Agriculture Equipment cluster and transform the Mining and Infrastructure Equipment cluster.
The operating environment remains unpredictable. However, with the growth being experienced in the mining and agricultural sectors, our anchor segments, augmented by the team’s new look, there is belief that the Group will continue to deliver strong performances which Zimplow’s stakeholders have become accustomed to.
ACKNOWLEDGMENTS AND DIRECTORSHIP
I would like to thank Tim Johnson who served the Zimplow Board for his immense contribution during his 10 years as a director. I extend my gratitude to the Board, Management and staff for the continued support and commitment to the Zimplow Group.
28 April 2023
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