• Zimplow joins the queue to switch over to the waterfall bourse VFEX
• The firm recorded a net loss of ZWL$1.3 billion for FY'22
• The business is likely to remain under pressure in 2023 amid high inflation, currency volatility and subdued aggregate demand

Zimplow Holdings Limited, which is set to list on the Victoria Falls Stock Exchange (VFEX) after announcing its intention to delist from the Zimbabwe Stock Exchange (ZSE), weathered a turbulent year in 2022 owing to an arduous trading environment and the cessation of the Caterpillar dealership in September 2022. The discontinuation of Barzem activities culminated in a loss before tax of ZWL$1 billion caused by provisions of ZWL$7.4 billion, encompassing stock write-downs of ZWL$6.4 billion, exchange losses of ZWL$0.5 billion and retrenchment expenditures of ZWL$0.5 billion. The directorate is acquiring Barloworld's 49% stake in Barzem to safeguard shareholder value.

In a cautionary statement to shareholders dated 04 May 2023, Zimplow group company secretary Mrs Sharon Manangazira articulated that the directorate has ratified the delisting of the corporation from ZSE.

“The directors of Zimplow Holdings Limited wish to advise all shareholders and the investing public that the board has approved the delisting of the company from the Zimbabwe Stock Exchange, immediately followed by its listing on the Victoria Falls Stock Exchange (the “Transaction”),

Further details of the transaction will be provided to shareholders once all regulatory processes have been finalised. Shareholders are, therefore, advised to exercise caution and consult their professional advisers when trading in the company’s shares.” she affirmed

The transition to the VFEX proffers several benefits to Zimplow, encompassing access to foreign capital and greater exposure to global investors. Listing on the waterfall bourse, VFEX,  will provide Zimplow with access to a more expansive pool of investors, who are likely to be enticed by the exchange's reputation for stability and transparency. By accessing foreign capital, Zimplow will be better positioned to fund its expansion plans and mitigate its exposure to the volatile Zimbabwean economy.

However, there are also risks allied with listing on the VFEX. Zimplow will need to comply with more stringent regulatory prerequisites, which could amplify compliance costs. The company will also need to navigate the unique risks allied with foreign exchange, such as currency fluctuations and geopolitical risks. Overall, the migration to the VFEX presents both opportunities and challenges for Zimplow, and the company will need to carefully administer these risks to ensure a triumphant transition.

For the 2022 financial year Zimplow’s revenue increased by 5.9% from ZWL$22.8 billion in 2021 to ZWL$24.1 billion. The increase was driven by robust volume and price growth across all segments. Cost of sales declined by 5.4% from ZWL$14.3 billion to ZWL$13.5 billion due to diminished input costs mainly raw materials. As a result, gross profit increased by 26.6% to ZWL$10.6 billion.

However, Zimplow recorded an operating loss of ZWL$106 million in 2022 compared to an operating profit of ZWL$3.3 billion in 2021. This was chiefly due to a significant increase in other operating expenses which went up by 439% to ZWL$7.8 billion. Other income also declined by 236% to ZWL$1.7 billion. Allowance for anticipated credit losses increased from ZWL$33 million to ZWL$501 million, reflecting deteriorating economic conditions.

Selling and distribution costs were 16% higher at ZWL$328 million due to increased transport costs. Administrative expenses doubled to ZWL$7.9 billion due to exchange losses from increased exposure to foreign currency debts and investments. Finance costs grew by 124% to ZWL$89 million in line with higher borrowing levels.

Overall, Zimplow recorded a net loss of ZWL$1.3 billion for the year compared to a net profit of ZWL$1.5 billion in 2021. Other comprehensive income of ZWL$5.9 billion arising from revaluation of property, plant and equipment reduced the total comprehensive loss to ZWL$4.7 billion.

The year started positively with strong demand across segments. However, the drought slowed agricultural equipment demand in the second half. Monetary tightening and lower liquidity also reduced demand for capital equipment. Although the logistics and automotive segment grew, it did not offset the termination of the Caterpillar dealership.

Agricultural equipment: Mealie Brand export sales grew 36% but local sales fell 16%. Implements and spares sales rose. Farmec tractor sales fell 15% but higher-powered tractors and implements sales rose. Service hours grew 32%.

Logistics and automotive: Scanlink truck and bus sales rose 88% and 300% respectively due to improved supply and long-standing orders. However, parts and service hours fell due to fleet renewal. Good Year tyre sales rose 2% despite challenges. Retread production rose 40%. Further progress is needed to meet targets.

Mining and infrastructure equipment: Barzem transitioned to Tractive Power Solutions (TPS) to serve mining and construction needs, with infrastructure, skills and funding. Alliances were secured to continue servicing major customers during the transition. Service contracts were won, boosting scale. Powermec generator demand and service hours rose 16% and 44% respectively. Solar installations rose 116%. CT Bolts matched prior year volumes but profit fell 14% on lower margins.

No dividend was declared to reorganise the mining and infrastructure cluster.

Outlook and strategy: Extract synergies and efficiencies from restructuring to improve results. Significant cost savings are expected. Grow TPS market share in mining and construction equipment,parts and service. TPS aims to become a technical solutions partner for major fleet owners and workshops. Build resilience in Massey Ferguson and Valtra tractor brands under separate units, Farmec and Valmec. Expand Mealie Brand's small-scale mechanization range. Stabilize logistics and automotive, strengthen agriculture equipment and transform mining and infrastructure equipment. Although unpredictable, mining and agriculture sector growth and restructuring provide opportunities.

Based on the analysis, Zimplow’s financial performance deteriorated in 2022 compared to 2021 due to operational challenges and adverse economic factors. The business is likely to remain under pressure going into 2023 amid high inflation, currency volatility and subdued aggregate demand. Cost control and new revenue streams will be key to return to profitability. Working capital management will also be critical to navigating the difficult economic environment.

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