Impressive set of finals from Zimplow

An impressive set of finals from Zimplow as the group continues to deliver a steady performance. The top line grew by 6% to $15.5 million supported by a 30% growth in domestic sales accompanied by a 17% growth in export sales and an additional contribution from a new acquisition, African Traction and Associated Technologies (AFRITRAC). Despite the widespread costs pressures from wages and utilities, the company managed to post first-rate Earning Before Interest and Tax (EBIT) growth of 25% indicating EBIT margins of 22.3%. Net finance income of $170,744 was generated on the back of a strong cashflow position. The Profit Before Tax thus amounted to $3.6 million, 24% up from the prior period whilst the attributable profit at $2.7 million was affected by a higher tax rate of 25% (compared to 20%) as the company did not manage to export more than 50% to qualify for the tax incentive. The EPS was unchanged at US0.01c due to a share swap for the Afritrac transaction. The company declared a $0.027 dividend payable 14 March 2012; the LDR is Friday 09 March.    

The balance sheet remains pristine, with nil gearing and a solid current ratio of 7.3x up from 6.9x. The company has had good payment patterns from its customers with all debtors within the 30 day range. Net cash generated from operating activities amounted to $1.8 million (FY2010: $2.2 million), whilst the closing cashflow was $3.9 million from $3 million prior year. There was no provision for the $420,027 investment with Renaissance Merchant Bank, as the company is hopeful that the amount will be recovered following recent developments at the Bank.   

In terms of production, the flagship unit, Mealie Brand recorded a 27% growth in total implements to 74,113 units, with domestic units sales registering a 46% growth as the company benefitted from the Protracted Recovery Programme (PRP) which enhanced sales.

Exports only grew by 8% to 31,724 units as drought in East Africa, delayed seasonal take-off and cheap products from the East limited exports. Spares units declined by 11% to 570,464 due to carryover stocks from 2010. Late rains and the liquidity challenges also suppressed revenue growth while local cost increases weighed down margins. CT Bolts operations recorded a mixed performance with certain products for example mid steel bolts recording a 22% growth to 118,674 kg whilst nails and miscellaneous recorded declines.  Tassburg has turned the corner although its contribution to the group remains small, management is happy that the division is no longer losing money. Afritrac which is involved in the importation and sale of animal drawn implements and tools, contributed $1.5 million and $145,000 to turnover and PBT in its 10 months of trading post the acquisition. Zimplow controls 49% of the latter after a $552,000 share swap was made at US6.00cents/share.

The group's major cost drivers are, employment costs after a 20% increase was effected. Steel prices also increased by an average of 33% as heavy snow in the US and Europe caused shortages of scrap, thereby affecting global prices. Fuel prices also rose by 15% in January 2011, leading to an increase in haulage costs. On the outlook, more cost pressures are expected to come from huge wage demands and higher utilities charges. The erratic rainfall patterns in the region are also a concern. The company has made entry into countries such as Angola and Sudan and continues to pursue growth strategies both locally and in the region. Funding options could involve cash or share swaps.

Zimplow continues to display attributes of a well run entity. Its strong balance sheet is likely to support the planned growth strategies. The company has strong market dominance, commanding between 85% and 90% of the Zimbabwean market and 60% of the Zambian market. The quick return to functionality of Zim Steel might aid raw material costs for Zimplow. Steel prices in the Southern African region remain high compared to prices in Asia and average about $600/tone in China compared to $1,000/tonne in the Southern Africa region. For FY 2012, management is forecasting a 20% and 15% growth for the topline and bottomline respectively, which implies an undemanding  PER+1 of 8.8x.