Zimplow Holdings Limited (ZIMW.vx) HY2023 Interim Report
The trading environment continued to be challenging in the first half of the year, caused by a depressed liquidity environment. Furthermore, reduced spending on road construction projects affected the general level of activity in the infrastructure sector. This impacted adversely on the business activity. During the period under review, the Group therefore focused on balance sheet preservation and cost containment.
Strategically, the Group is resetting to assert its status as the supplier of choice for agriculture, mining, infrastructure and automotive equipment solutions. The Group is also on course to recover from the gap caused by the termination of the caterpillar distribution agreement at end of September 2022 through the launch of two new business units namely Tractive Power Solutions and Valmec as well as the implementation of the Mealie Brand capacitation project.
The Group recorded a growth in revenue in inflation adjusted terms of 77% from prior year same period. Operating profit remained flat against prior year due to costs pressure on trading and operating margins. During the period under review, management have continued to maintain strong cash flow conversions of business recorded, with an emphasis on reducing over-weights in debtors and inventory. The investment in factory tooling, new branches (at Trentyre) and businesses (TPS and Valmec) remain on course.
Commentary is based on volumes and financial performance in real terms to avoid distortions resulting from inflation adjusted reporting under International Accountings Standards (IAS) 29.
AGRICULTURAL EQUIPMENT SOLUTIONS
The Cluster has been focused on creating resilience owing to soft producer pricing and changes in weather patterns. Therefore, the launch of Valmec, targeted at supporting the entry level or emerging commercial farmer either with Valtra tractors or competitive brands with Sparex parts, is set to cover the needs of the entry-level market segment which had not been covered by Zimplow in the past, at the same time allowing Farmec and Mealie Brand to dedicate their focus on their established market segments without diluting their current effort.
Local implements sales contributed 88% of total revenue in the period under review. Implements sold in the local market were 69% ahead of prior year whilst exports were depressed by 56% below prior year mainly due to the slow uptake. Operating profit in real terms was down by 4% compared to prior year as a result of depressed trading margins as the business sought to defend the market position from competition.
The encouraging interest and demand on the recently introduced 2-wheel tractors and attaching implements is expected to contribute to increased revenue and product offering to the market. The Business Unit is at an advanced stage with its capacitation programme which is set to increase factory efficiencies and capabilities.
The separation of the Valtra brand and establishment of Valmec as a stand-alone Business Unit (BU) is yielding the desired dividend with entry level tractor drawn implements being 30% ahead of projections in the period under review.
The tight liquidity environment coupled with soft producer pricing had a knock-on effect on the Division’s revenue drivers. Wholegoods volumes were 28% below prior year. However, the initiatives deployed by the Business Unit (BU) to improve customer experience on aftersales, saw the service revenue increasing by 10% in real terms compared to prior year. The BU is focused on recovering lost ground on tractor and implements sales up to year-end.
LOGISTICS AND AUTOMOTIVE SOLUTIONS
Improvement in supply chain as well as a firm order book drove the BU’s revenue to be 4% ahead of prior year. The BU’s volumes sales on trucks and buses were 30% ahead of prior year. Aftersales business was subdued with parts sales and hours sold dropping by 5% and 2% respectively due to tight macro-economic factors. However, the BU’s operating profit which anchored the Group’s profitability was 134% ahead of prior year in real terms. The BU contributed 44% to Group profiatbility. The BU has an encouraging order pipeline which will sustain the financial performance up to year-end.
Although the Business Unit was faced with supply chain bottlenecks, its revenue was 9% ahead of prior year performance. However, factory bottlenecks and resultant pressure on margins pushed the BU into a loss. Interventions for business recovery include an improvement in supply chain and the opening of a new branch in the Harare CBD, which was launched in May 2023.
MINING & INFRASTRUCTURE EQUIPMENT SOLUTIONS
Management is following through on achieving the Group’s ambition for the Cluster to be a one stop shop for equipment solutions focused on earth moving and alternative power. The Group is nearing conclusion of both the acquisition of Barloworld’s shares in Barzem and an original equipment manufacturer for earth moving equipment to complete the desired identity of the cluster.
Tractive Power Solution
The Group has made inroads in the supply of filtration, lubricants and mining Ground Engaging Tools (GET) as well as secured Service Level Agreements (SLA’s) with key fleet operators. The BU is expected to springboard the new mining equipment Original Equipment Manufacturer (OEM). Discussions are ongoing with a potential OEM to replace Barzem.
The increased demand for backup power in the first half of the year spurred the growth in volume sales for generators, aftersales and solar. Generator volume sales were 47% ahead of prior year. Parts sales and hours sold were 33% and 16% ahead of prior period respectively. Solar installations revenue were 22% ahead of prior year. The BU contributed 37% to Group profitability.
The focus on aftersales as well as broadening the product lines through cables and batteries is expected to insulate the business to a certain degree from the effects of the stability of the grid.
CT Bolts (& Industrial)
The Division’s revenue was 4% ahead of prior year whilst tonnage volume sales were depressed by 3% mainly due to the sales mix. Pressure on margins and operating costs weighed down operating profit by 65% compared to prior year. The Business Unit is working on initiatives to increase product offerings mainly on mining consumables for its sustained growth.
The Group is on course to conclude the acquisition of 49% shareholding in Barzem from Barloworld Equipment UK. In the period under review, the business unit was on care and maintenance as the Board focused on the recruitment of a new OEM after the conclusion of the share purchase agreement.
The Group will not declare a dividend as it seeks to utilize the available cash flows to consolidate the business initiatives under the Mining and Infrastructure Cluster.
I would like to thank Mr Matthew Davis for his contribution during the two years he served on the Board within the Group until 6 April 2023. Mrs Angeline Vere was appointed as a non-executive director of the Group with effect from 1 June 2023. On behalf of the Board, I wish to extend a warm welcome to her.
Whilst the Group is confident of growth driven by the Mining, Infrastructure and Automotive Clusters, the forecast of the El Niño rainfall pattern may reduce the Group’s growth prospects as the Agricultural Cluster still constitutes a significant component of Group’s business.
I would like to extend my appreciation to the Zimplow Board, Management and staff for their hard work and commitment despite the challenging trading environment. I would also like to thank our various stakeholders for their continued support to guide Zimplow into the future.
28 September 2023
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