Zimplow Holdings Limited (ZIMW.zw) 2021 Annual Report
Zimplow has continued to transform, making positive steps to build for the future and at the same time delivering pleasing financial performance. The strategic actions taken by the Board and Management have begun to bring the desired results in terms of positioning the Group for growth ensuring Zimplow becomes the largest capital equipment solutions provider within Zimbabwe and beyond our borders. The completion of the acquisition of Scanlink and Trentyre, together with the supporting back-up infrastructure during the year 2021 is yet another significant milestone towards bringing value both to our shareholders and customers.
As a result of the various threats and opportunities currently obtaining in the market, the Board is constantly evaluating options available for the Group to sustainably deliver tailor-made value to both internal and external stakeholders.
Zimplow delivered a strong and encouraging financial performance by growing revenue by 54% for the financial year ended 31 December 2021 in comparison to the prior year performance in inflation adjusted terms. In addition, the operating profit for the year under review grew by 222% in comparison to the prior year performance. This encouraging financial performance was achieved by volumes growth from all the group’s business units, with Farmec and Barzem posting record performances.
The trading environment has continued to pose both opportunities and threats. The year 2021 saw major supply chain distortions to our recently acquired businesses, that is, Trentyre and Scanlink. The supply chain distortions were caused by Covid-19 induced movement restrictions, which in turn affected supply of freight services. In addition, the Group faced challenges in the timely remittance of payments to foreign suppliers. We are however quite pleased with the manner in which the Group responded to the various challenges from the trading environment.
The year commenced on a positive trajectory. However, lower than expected rainfall patterns during the 2021 rainy season adversely affected the agriculture-based value chain. This circumstance was further exacerbated by acute foreign currency challenges, heightened inflation risk, causing exponential increases in operating costs. The above stated challenges resulted in the Group placing considerable focus on balance sheet preservation as well as constant engagement of internal and external stakeholders. Tactically, the Group has continued to prioritise its engagements with suppliers and Original Equipment Manufacturers (OEMs). The Group continues to take positions on strengthening working capital elements in order to drive growth and market positioning.
The Group has made considerable progress in various facets of the business inter alia human capital development, face lifts of branches of Group entities, improvements in general back up infrastructure and factory capacitation. Strategically, the Group is realigning itself, in order to take advantage of the Group synergies and delivery of a wide range of services entrenching the Group’s ambition as a one-stop shop for its customers. To sustain this ambition, the Group has restructured its operating model. The new operating structure will give rise to a new operating model focusing on market segments and/or clusters that we operate in namely, the Agriculture, Mining & Infrastructure and Logistics and Automotive clusters.
The Group has continued to place emphasis on business performance with a particular focus on increasing business volumes, enhancing operating profit, net asset value (NAV) growth in real terms as well as effective cash flow management. In line with the Group’s restructuring initiative, the operational performance of the Group shall be reported on a Cluster approach.
Farmec posted an impressive performance growing volumes across all its main product lines. Farmec grew volumes for tractors by 48%, tractor drawn implements by 56%, parts sales by 30% and service hours by 22% in comparison with prior year. This resulted in overall revenue growth of 48% and a growth in the Company’s operating profit by 69%, in real terms against prior year performance.
The business unit is steadily growing towards being the leading distributor of agricultural equipment in Zimbabwe. The focus is now on achieving convenience for our customers from an aftersales perspective through a highly engaged back up support team.
Mealie Brand recorded a growth in volumes in local implements sales of 10% against prior year performance. There was significant growth in sales of hoes of 138% against prior year, mainly driven by improved capacity at the factory. The lower-than-expected rainfall pattern during the rainy season had an adverse impact on land preparations resulting in a slowdown of demand in local spares by 22% against prior year performance. On the positive, the board is pleased with the growth in export implements and spares volumes of 44% and 75% respectively.
Overall implement sales volumes grew by 21% and spares by 3% against prior year, anchored by export performance in the year under review. Mealie Brand therefore grew its revenue by 34% and operating profit by 21% in real terms against prior year performance.
Operationally, the business unit continues to put effort towards improving factory efficiencies in resource allocation and replacement of key capital equipment. The board remains committed to providing products that meet the evolving needs of its customers through investment towards research and product development. In addition, management have sought to align the distribution network in order to deliver convenience to our customers.
Logistics and Automotive Cluster
The business unit recorded a strong performance despite numerous headwinds attributable to Covid-19 induced supply chain disruptions which negatively impacted the operations of Scanlink. Parts sales grew by 30% driven by strong demand after the realignment of our supply chain model, which made our business extremely competitive and convenient to our customers. Hours also grew by 4% against prior year. As a result of the positive execution of the renewed supply chain model, Scanlink increased its revenues up by 15% and operating profit by 145% in real terms against prior year.
The outlook for the financial year 2022 looks brighter and the business unit is looking to follow through on the considerable backlog in truck and bus orders from the previous year.
The business unit recovered from a challenging first half of 2021 closing the year positively after a staffing and supply chain reorganisation. The volumes of Passenger Car Radial (PCR) tyres grew by 28% against the prior year. This growth in volumes was driven by improved distribution channels and stock availability. Improvements in stock availability also propelled growth in volumes for Truck, Bus and Radial (TBR) tyres by 23% against the prior year. The goodwill and trust in the quality of the Trentyre’s Off the Road (OTR) tyres in major mines sustained the performance of the range, as evidenced by a 116% growth against prior year. Resultantly, Trentyre grew its revenue by 15% and operating profit by 193% in real terms compared to prior year, capping what has been the genesis of positive financial performances for Trentyre.
Management continues to place emphasis on the re-organisation of the supply chain and team balance. As a premier supplier of tyre and tyre management solutions, we have been working hard to provide the quality and standard expected of us by our customers.
Mining and Infrastructure Cluster
CT Bolts has been making steady progress in asserting its dominance in the fasteners industry. The business unit achieved volumes growth of 48% against prior year performance. This was driven by the drive towards establishing new market segments such as prepacked fasteners for the retail market, specialised mining bolts and various other consumables. Management at CT Bolts continues to focus on business growth and supply chain agility in order to bring convenience and significant value to the Company’s customers.
2021 was a relatively stable year from a power supply perspective on the main grid, hence the reduced demand for alternative power products. Generator units sold remained subdued with a 16% drop from the prior year. However, the performance of Powermec’s new Solar product range was encouraging as the business unit achieved a 167% growth against prior year. The strong after sales performance grew parts sales by 72% and service hours by 22% against prior year, driving both revenue and operating profit up by 30% and 7% respectively in real terms, compared to prior year performance.
The performance of the solar energy range of products continues to gather momentum and we look forward to a strong performance in financial year 2022.
The drive by the government to support infrastructure development through the Emergency Road Rehabilitation Programme (ERRP) culminated in increased earth moving equipment sales at Barzem. Overall, volumes of earth moving equipment sales grew by 84% against prior year performance. On the other hand, the focus on production by major mining houses who use CAT surface mining and handling equipment resulted in increased fleet maintenance. Consequently, parts sales grew by 75% and hours sold by 65% against prior year performance. Revenue therefore grew by 102% whilst operating profit was 109% ahead of prior year performance.
The challenges in foreign currency remittance experienced in the fourth quarter of 2021 slowed down business volumes. Management therefore adopted balance sheet preservation tactics. In addition, robust engagements with financial institutions have however continued to help in unlocking this foreign currency bottleneck.
Barzem will exit the Caterpillar distributorship on 30 September 2022 given the changes in the strategic direction by both the supplier and Zimplow Group. Whilst this exit is expected to have an impact on the Group’s revenue performance initially, we believe that the risk management protocols that have been put in place by the board and management will ensure that the group preserves value and shareholder returns. Given these risk management protocols, the board and management believe the group is in a strong position to deliver its corporate strategy in the Mining & Infrastructure segment.
As a result of the positive performance recorded by the Group, the board declared a final dividend of ZWL 35.40 cents per share for the year ended 31 December 2021. This dividend together with the interim payment brings our total dividend pay-out ratio to 26%. A separate announcement will be made with respect to the dividend payment.
The Group continues to strengthen its capability and capacity to respond to changes in the operating environment and undertaking stakeholder management in a holistic and robust manner with respect to suppliers and customers in order to deliver superior value to our Shareholders. Based on the performance as outlined above, the Board is confident that the Group has adequate risk management systems and a viable business strategy to withstand the fluidity and complexities of the country’s operating environment.
In addition, the COVID-19 pandemic is still lingering over the operating environment and as such the Group will continue to implement the public health protocols as prescribed by COVID-19 National legislation and the World Health Organisation (WHO).
One of the key strategic matters the Group is currently seized with is the search for a new OEM of earthmoving equipment to replace the Caterpillar brand at the end of the Distributorship Agreement on 30 September 2022. In line with the Group’s corporate strategy, the Board will focus on balance sheet preservation and growth of the new product line yet to be introduced, in order to deliver expected shareholder returns.
The Group is confident that the capacity built over the years in terms of goodwill and trust in Zimplow’s back up infrastructure, human capital skills and experience in the provision of earth moving equipment, will be vital in resetting the Mining & Infrastructure Cluster to perform in line with the Group’s vision.
I would like to thank fellow Directors, Management, and Staff for delivering such a pleasing financial performance and set of results despite the complexities obtaining in our current operating environment.
30 May 2022