Zimplow Holdings Limited (ZIMW.zw) HY2022 Interim Report
It gives me great pleasure, once again, to present the Zimplow Group’s half year inflation adjusted financial statements to our stakeholders. The Group delivered a resilient performance driven by Powermec, Scanlink, Farmec and CT Bolts, the business units that delivered profitability and volumes growth. The Group once again demonstrated the strength in its diversified structure to achieve both revenue and profitability growth.
There has been numerous global challenges affecting Zimbabwe in general and the key market segments in which the Group operates in particular, such as erratic rainfall in the 2021/22 season, the geo-political conflict in Eastern Europe as well as the aftermaths of COVID-19 pandemic amongst the various factors. Such challenges have brought about increases in supply lead times and costs of equipment as well as various inputs required in agriculture, mining, constructions and automotive sectors. On the positive end, the increase in prices for minerals and various commodities has also been an incentive for capacity expansion for various mines and the respective value chains which supply the same raw materials.
Macro-economically, the delay in remittance of foreign currency awarded on the RBZ auction market further increased the lead times and therefore working capital cycles that had been substantially affected by the COVID-19 pandemic. The measures to reduce money supply, such as the suspension of lending in May dampened demand as most agricultural contractors decided to suspend extension of credit to the out-grower schemes in agriculture. In addition, the interest rate spike that followed discouraged bank borrowings which the Group has traditionally leveraged on to address the increased appetite for cash given the long working capital cycles.
The producer prices obtaining at the Grain Marketing Board have so far discouraged deliveries to the primary off-taker especially on the back of lower than expected 2021/22 yields and increases in inputs costs. On the mining and infrastructure segment, the delay in settling road contractors remain a bottleneck in the spending patterns of contractors both on fleet maintenance and replacement. Despite the various challenges, the Group has remained committed to finding solutions in order to support its stakeholders in the quest to be the right partner to equipment users in the segments the Group operates.
The Group continues to leverage on its diversified structure to deliver encouraging and strong performances despite the challenges prevailing in the operating environment.
Farmec – Large Scale Farming Equipment
Farmec continue to press ahead with its strategy to deliver high tech equipment to our customers to support their cause for increased productivity. During the period under review, Farmec had a strong volume performance with tractors at 22% ahead of prior year, and tractor drawn implements 3% up on the prior period. Efforts to improve throughput and capacity in the workshops through work studies resulted in a 73% growth in hours sold when compared to the same period last year.
Mealie Brand – Small Scale Farming Equipment
The dry spell that persisted in the second half of the 2021/22 season had an impact on the demand for Mealie Brand products due to reduced yields by users of these products who are ordinarily dry land farmers. Animal drawn implements volumes declined by 26% against the comparative period. The spares volumes for the local market were however pleasing with a 35% growth against same period last year as farmers sought to apply the reduced disposal incomes on equipment maintenance rather than replacement. The drive to expand the business unit’s capacity and product range remains on course as evidenced by the launch of the 2 Wheel Tractor range of products.
Logistics & Automotive
Scanlink – Trucks & Buses
The improved supply chain dynamics with Scania had a remarkable impact on our business as volumes for trucks and buses grew by 33% and 100% compared to same period last year. In 2021, Scanlink built a strong base in aftersales performance which has been sustained this year as service hours were level against the comparative period. With the supply chain unlocked, and supported by a strong order book going into the second half of the year, Scanlink is poised for a positive performance this financial year.
Trentyre – Tyres
Trentyre has to a larger extent now weathered disruptions in the supply chain caused by COVID-19 and staff turnover. The adopted strategies as well as culture alignment is beginning to yield returns. However due to the stock supply gaps in Q1, new tyre sales were 33% down on prior year. On the other hand, retreading volumes grew positively by 61% compared to the previous year driven by new processes, technologies and equipment installed at the factory to enhance capacity. The unit will seek to stabilize the sales of new tyres as we enter the second half of the year.
Mining & Infrastructure Equipment
Powermec – Alternative Power
Powermec recorded an impressive performance buoyed by the continued improvement in reputation in service delivery by the business unit given the instability on the power grid. The unit recorded a 62% increase in service hours sold compared to prior year and sold 34% more power in KVA than 2021.
CT Bolts – Fasteners
CT Bolts sold 12% more tonnage compared to 2021 same period under review. The focus remains on establishing relationships based on quality and strength of our product and services.
Barzem – Earth Moving Equipment
The 6 months period under review has been challenging for Barzem. Firstly, the business unit experienced delays in the remittance of foreign payments via the auction system causing parts and equipment orders to be delayed or cancelled. The second quarter then began with a notice of termination of the CAT distributorship which is coming into effect on 1st October 2022. The business unit has therefore been seized with value preservation actions in preparation for Zimplow to transition to a new supplier of earth moving equipment albeit under a new corporate identity.
The Group recorded growth in revenue of 24% compared to prior year driven the by positive operational performance and volumes growth in key segments of the Group. Profitability was 64% ahead of prior year supported by a 12 fold increase in exchange and fair value gains.
The Group remains focused on realigning the working capital position given the need to rely on internal resources arising from increased lead times, delayed remittance of auction funds and reduced demand following the liquidity squeeze driven by monetary policy measures. The Group is geared on strengthening its balance sheet position by reducing foreign liabilities, and repositioning the Group to deliver earth moving equipment through a new Original Equipment Manufacturer (OEM) or supplier.
The difficult trading environment continues to put pressure on our customers who in turn are focusing on value preservation strategies instead of capacity expansion. The forecast of a La Nina season offers the much needed optimism as we enter the 2022/23 season.
The Group remains positive in its strategy execution to deliver a stronger Zimplow as the year 2022 closes. In addition, the Group is pushing ahead on its commitment to the mining and infrastructure equipment sector and will soon introduce a new corporate brand to service the market’s earth moving equipment needs in line with our customer’s expectations.
Given the Group’s focus on realigning the company’s structure to a new OEM for earth moving equipment, realignment of working capital cycles as well as the need to reduce exposures to borrowings and foreign liabilities following the monetary policy measures, the board has decided not to declare an interim dividend.
I would like to extend my appreciation to Management and all the employees for their continued effort to deliver encouraging and resilient results despite the challenging trading environment. I would also like to thank my fellow Board members as well as our various stakeholders for their continued support to guide Zimplow into the future.
G. T. Manhambara
30 September 2022
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