26 February 2018

Zimbabwe: Zimplow Reaps Rewards of Restructuring Pain

After three dark years, Zimbabwe's biggest agricultural implements maker, Zimplow is back in the black, leaner and more efficient after taking the pain of restructuring and cost cuts.

The company, which is also among the largest manufacturers and distributors of farming implements in sub-Saharan Africa region, operates through four divisions, namely, Barzem, Mealie Brand, CT Bolts and Farmec.

All these business units achieved profitability in 2017 as the group recovered from a loss of $2,5 million in the previous year to a net income of $3,4 million for the year ended December, 2017.

The results complete a remarkable turnaround for the agriculture implements manufacturer which changed management in January 2016 after successive poor results under former chief executive Zondi Kumwenda. Kumwenda was replaced by Mark Hulett.

The company reported a loss after tax of $4,8 million for the year to December 2015 and has been making losses since 2013.

Going back to 2014 the company was severely affected by a marked slowdown in its two key sectors of mining and agriculture. The agricultural season was a write-off after the El Nino weather phenomenon which, coupled with the unavailability of finance left the company saddled with a huge debt on its balance sheet.

In 2014 the company's debt stood at $9,4 million before it went down to $7 million in 2015.

In a bid to fight the depressed trading environment, the company focused internally on three areas: gearing, costs and cash management.

The first move, towards an improved financial performance, was to get rid of its debt overhang.

In order to get rid of its debt burden the company offered a rights issue which was concluded in February 2015 for $5 million. The proceeds from the rights issue were used to retire expensive bank debt which was overdue and placing the business under strain. The combination of cash raised from the rights issue and collection of debtors helped to repay $ 6,78m of borrowings and materially reduced its total debt to equity ratio from 43 percent to 16 percent for that year. Additionally, the company undertook a restructuring programme between 2013 and 2015 where it right-sized the business. The restructuring also included retrenchment of staff. It reduced overheads across the group, with a target of an average annual saving of $1,7 million annually.

Two non-core operating divisions, Puzey&Payne and Tassburg were disposed of.

Resultantly operating expenses started to fall.

But revenue also continued to fall and in 2016, turnover declined by 21 percent to $24,2 million as the El Nino after effects continued.

Notwithstanding this material reduction in turnover, the group's operating loss more than halved from $5,4 million in 2015 to $2,5 million in 2016 due to greater cost discipline across most of the business units as well impact of the restructuring efforts undertaken in 2015 and early 2016.

Management countered liquidity conditions and depressed demand by prioritising trading for cash as well as liquidating excess assets.

Such restructuring activities together with continued reduction in debt brought positive results in 2017.

In 2017, revenue rose 60 percent to $39,1 million from $24,2 million in the prior year after a good agriculture season. Operating profit came in at $4,8 million from a loss of $2,6 million previously.

This was a great improvement since in 2014 and 2015, the company reported an operating loss of $3,98 million and $4,78 million respectively. Finance costs dropped from $1,4 million in 2014 to $275,375 in 2017.

The group's performance was anchored on a significant reduction in debt, cost containment initiatives and disposal of non core assets, all with the effect of significantly reducing finance costs and improving the group's cash position.

However, the shortages of hard currency remain critical as the group continues to face challenges in paying foreign suppliers.

Subject to the vagaries of the weather, Zimplow faces a profitable future.


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