Zimplow pleased with restructuring

Published: 05 March 2014

Zimplow CE Zondi Kumwenda told an analysts briefing today that they are pleased by the group's structure which emerged after the restructuring last year and they are "now focused on the businesses they know best."

The group completed the re-organisation in F13 which started after the takeover of Tractive Power Holdings in July 2012 with the sale of two peripheral units.

Puzey and Payne was sold on June 1, 2013 but it had contributed a loss of $682 000 to the group in F13 while Tassburg was flogged in November 2013 and it had made a loss of $174 000 during that time. In total the discontinued operations contributed a loss of $801 000 to the group.

There was an additional restructuring cost of $573 000 to cover staff rationalization and transaction costs during the rights issue which was done in F13.

Commenting on the operations Kumwenda said at the animal drawn unit, local implements sales went down 1% to 35 449 while export implements were down 28% to 28 715 units. Hoes went down 34% to 34 628 units while spares unit volumes went up 5% to 735 846, with Kumwenda saying had it not been for the lack of liquidity they probably would have had a good spares season.

"Sales volumes in this division were affected adversely by reduced donor activity, low disposable income, the tight liquidity in the market and competition from the East," he said.

"We are nearly neck-to-neck in terms of the landed costs of imports and our cost of production as suppliers in China are no longer as competitive as before because of rising labour costs," he said before adding that the major let-down is the high cost of steel for the local producers.

At Farmec tractors sales were down 31% to 88 units, one combine harvester was sold compared to none last year while 67 generator sets were sold, down 52% on F12.

Northmec sold 41% less tractors at 13 units and 6 Harrows, which represented a decline of 40%. Kumwenda said the late arrivals of some equipment from suppliers affected sales.

He bemoaned the lack of asset based finance as a major impediment to sales of mechanical equipment. Poor land preparation on the farms, he said, reduced workshop activity while part sales turnover was hit by the influx of cheap imitation products.

"There was also a deliberate change in business model from credit to near cash in response to the tightening liquidity and that also impacted negatively on volumes."

He said the asset based facility they were working on did not materialize as expected adding it is difficult to get a class A bank underwrite 5 year letters of credit (LC's) because of land tenure uncertainty in Zimbabwe.

Efforts are underway to operationalize the facility as a way to inspire sales since customers intending to buy simply cannot raise enough cash for the purchases.

Barzem sold 17 earthmoving equipment down from 21, while lift trucks sales increased to 31 from 11 with generator set sales rising to 28 from 23 units.

Kumwenda said service hours went down by 43% to 47 795 while parts turnover was 12% lower at $6.59 million.

"Whole goods unit volumes and sales were buoyed by lift truck and generator sales with lower dollar values than large mining/earthmoving equipment," he added.

He also disclosed that services hours and parts turnover were negatively impacted by decline in the traditional exported labour to Mozambique and the DRC, stricter credit control in H2 and low construction activity.

Volumes were down 16% at fasteners business with Kumwenda attributing the decline to low disposable incomes, low infrastructural activity, and competition from the East and arbitrage opportunity for small traders with low overheads.

On the financial highlights finance director Francis Rwakonda disclosed that revenue from continued operations was up 34% to $39.9 million.

PAT from continuing operations went up 572% to $1.7 million because of fair value gains on investment properties of $1.24 million in addition to net gain on disposal of Puzey & Payne and Tassburg of $1.4 million.

Operating cashflows moved to $549 000 from negative $1.17 million while interest costs from continuing operations were $956 000 compared with $680 000 last year because of high borrowing cost inherited from Puzey & Payne. These have since been retired, according to Rwakonda and borrowings are currently just under $8 million but with better terms than prior year.

He said the plan to reduce debt by December 2013 did not materialize but they are still working on it.
- zfn

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