4 May 2012

Zimbabwe: Tractor Volumes Plunge at TPHL

AGRO-IMPLEMENTS dealer, Tractive Power Holdings Limited (TPHL), has posted a depressed set of results for the half-year to February 29, 2012, with a 55,6 percent slump in attributable earnings as group performance suffered from market-wide challenges.

This was despite revenue surging by 16 percent to US$22 million during the interim period, from US$19 million during the comparable period the previous year.

Revenue growth had been largely supported by a 140 percent increase in earthmoving machine sales.

Cash flows were strained due to high working capital requirements. Net gearing deteriorated to 19,2 percent, from 14,1 percent the previous year, but analyst, Nontando Zunga, from Imara Edwards Securities, said this remained manageable.

However, there had been a 27 percent decline in tractor and generator sales at Farmec and Northmec Zimbabwe during the half-year period as liquidity challenges, high interest rates and low disposable incomes continued to dominate the dollarised economy.

Service volumes were down nine percent.

Pre-tax profits declined to US$1,2 million from US$2,2 million in 2011 as operating costs charged by 20 percent, driven by net finance costs that climbed to US$244?186 during the review period, from US$56?302 in 2011.

Attributable earnings declined to US$603, from US$1?361 during the first half comparable period the previous year.

Basic earnings per share went down to 39 US cents during the six months ending February 29 2012, from 88 US cents in 2011.

In its statement to shareholders, TPHL said tractor and generator unit sales at Farmec and Northmec Zimbabwe had declined by 27 percent and two percent respectively.

"The economic environment characterised by tight liquidity constraints, high interest rates and low disposable incomes adversely affected the group operations. Positive growth was, however, achieved on earthmoving machine sales at Barzem, motor vehicles at Puzey & Payne and parts which increased by 140 percent, 75 percent and 17 percent respectively. The group expects an improvement in trading volumes during the second half of the financial year due to the anticipated improvement in market liquidity," TPHL said in the statement.

Zunga said in an investment note issued by her firm: "We expect increased capital expenditure in the mining and agricultural sectors to benefit Barzem, should the economic turnaround be sustained. We expect the Toyota franchise to open significant opportunities for the group given its strong brand and high market penetration."

"Through an extensive branch network and sophisticated diagnostic computerised equipment, Puzey & Payne is likely to maintain the lion's share of the after sales servicing market.

"In our view, TPH is well poised for any economic recovery with its strong brands, rationalised business and strong balance sheet," said Zunga.

Zimbabwe's cash-strapped farmers, who enjoyed strong central bank support for capital expenditure before the country switched to multi-currencies in 2009, have battled to access funding to recapitalise their farms, forcing several agro-equipment dealers to wind up or cut down operations.

TPHL has interests in five firms with investments in the agro-related industry.

The group's shareholding in these companies includes a 65 percent stake in Barzem, 100 percent shareholding in Manica Road Investments, 50 percent control in Northmec, 100 percent interest in Puzey & Payne and another 100 percent shareholding in Farmec.

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