Zimplow targets $100 million turnover by 2015

Zimplow Holdings Limited is targeting $100 million turnover by 2015 amid negotiations by the group with some financiers to provide tractors and other implements on an asset based finance scheme, group CEO Zondi Kumwenda told an analyst briefing yesterday.
 
"It's a very key negotiation that is going on between ourselves and some financiers where we will probably be able to provide tractors and associated implements on an asset based finance scheme with payment spread over 2 to 3 years and also with an interest rate that is well below 10%," he said.
 
Kumwenda noted that the firm will focus on utilising considerable opportunities in tractors and tractor drawn farming equipment segment, in the domestic market.
 
He noted that Zimplow has over 80% in terms of market share in the country.
 
"In terms of agricultural equipment supply there is no company in Zimbabwe that has got the size of Zimplow…we really are the dominant player and we would like to maintain that market leadership and even grow it and that's our goal," he added.
 
He further highlighted that Zimplow's exposure to these businesses will offer an avenue for product and market diversification within the agriculture and mining sectors as well as smoothen their revenue streams.
 
"The investment also offers Zimplow the potential to increase revenue and reduce costs through the exploitation of regional cross-selling opportunities, enhanced economies of scale, technology and product sharing," he added.
 
In light of the robust growth demonstrated by the mining sector and the strong outlook, Kumwenda said there is significant potential for Zimplow to consolidate its position within this sector "despite indeginisation and other issues that are around it."
 
Kumwenda also noted that as management they believe that; "this investment is a key investment… and will make us a dominant player in the provision of value-added engineering products in this country."
 
The group's revenue for the period under review was at $35.6 million against $15.5 million recorded in the prior year whilst the PBT was down 127% and this is mainly due to restructuring expenses of $1.9 million.
 
"Sales are up 130% propelled by TPH revenue. Group operating profitability was retarded by high interest cost of $1.016 million versus $78 493 the previous year, acquisition and restructuring expenses of $1.9 million versus nil last year and a fair value loss on investment property of $90 00," said FD Francis Rwakonda.
 
In terms of company revenue (which represents Zimplow without the subsidiaries of Afritrac and TPH), sales were down by 13% and PBT was down by 96%. This was mainly due to the interest cost of $297 851, acquisition and restructuring expenses of $1.045million and throughtput from the fasteners divisions.
 
"The major source of interest…was mainly due to the provision of finance for the TPHL acquisition," he said.
 
The group's interest costs were up $1.016 million from last year's $78 493. Zimplow's interest cost was 279% higher than last year while TPHL's interest cost was at $719 028 "which was incurred to finance working capital."
 
As mentioned by Rwakonda, borrowings for the period grew by 100% to $5.849 million from nil and this was acquired from TPHL.
 
Zimplow's strategy on borrowings is on "replacing expensive short term debt with long term cheaper debt and also negotiate better terms on the short term debt of which the average interest rates was around 18-19%."
 
Kumwenda indicated that the sales volumes of Mealie Brand, were down due to various reasons which include a bad 2011/2012 agricultural season characterised by poor harvest and cotton price wars that saw local sales units dropping.
 
"Late and erratic rains for 2012/13 seasons also affected the normal seasonal off-take, resulting in lower local volumes. Low disposable income and the tight liquidity in the market also continued to affect local revenues, "he said.
 
As a result, for example, Mealie-Brand which recorded a 10% decline in total volumes "relied heavily on exports which traditionally have thin margins because of competition from the East."
 
According to Kumwenda, in mining and construction, for example looking at CT Bolt, the volumes were affected by indeginisation which overally affected the mining industry.
 
Commenting on elections, Kumwenda said elections presents both opportunities and risks, and the key is to find the balance.
 
"After the elections…I think the economy will grow and we are into two key sectors of the economy, agriculture and mining, and if there are other growth sectors very few will beat those two sectors.
 
"The mining sector in particular, will benefit significantly from firming global commodity prices, and expected investments in power and infrastructure," he added.
 
Kumwenda noted that Zimbabwe's sovereign risk has also been viewed as high by international investors thus limiting access to international capital inflows and "hope that this will end in a few years to come."
 
Therefore, Kumwenda stated, "these factors present significant risk for the group going forward. The group will, however, be better placed to absorb such risks should they arise owing to a better-diversified revenue stream."
 
Furthermore, he emphasised that they are focusing on a significant reduction in the group's level of borrowings and associated costs by quarter 3.
 
Zimplow's other aim is to reduce operating costs in some units and improve efficiencies through the workshops and factories as well as improve revenues in the tractor division through asset based finance.
 
The firm is also looking at completing the "CT Bolts/Tassburg marriage by Quarter 2."

Kumwenda noted that in F13, shareholders should expect discontinued operations costs in the first half as well as a small operating profit or break even in that period and a profitable second half, with more than three quarters of restructuring costs already absorbed in F12.