- Break-Even in Sight: Expects to achieve a near break-even outcome in FY2024
- Cost Reduction Strategies: Implemented cost reduction initiatives through operational streamlining and supplier collaboration
- Positive Outlook for 2025: Driven by cost management strategies and efforts to enhance competitiveness in the face of cheap imports
Harare- Zimplow Holdings, Zimbabwe's leading supplier of tyres, mining, and agricultural equipment, has projected that it will not achieve profitability in FY2024, although a near break-even outcome would be viewed positively.
The term "break-even" refers to the point at which a company's total revenues equal its total costs, meaning there is no profit or loss. In other words, at the break-even point, the business covers all its expenses, but does not generate any profit.
When Zimplow Holdings states that it will not achieve profitability in FY2024 but aims for a "near break-even outcome," it means that while the company expects to incur losses, it hopes to minimize those losses to a level that is close to zero. This would be an improvement from a larger loss, and achieving a near break-even would indicate that the company is managing its costs effectively and is on a path toward potential profitability in the future.
This forecast follows one of the company's most challenging performance periods in over five years, marking its first operational and after-tax loss since the reintroduction of the Zimbabwe dollar in 2019 and the transition to U.S. dollar reporting last year.
The company’s primary brands, including Mealiebrand, have faced significant challenges, notably the most severe drought in four decades, compounded by substantial currency depreciation, which peaked at ZWL32,000 by April and reduced consumer purchasing power.
The drought has deterred farmers from making equipment purchases, and the currency crisis has exacerbated this reluctance.
Willem Swan, the acting CEO, noted, "Our experience has highlighted the substantial risks associated with a fully agricultural focus, particularly in the context of climate change."
In response to these challenges, Zimplow has implemented cost reduction strategies, achieving a 20% decrease in the cost of ploughs by streamlining operations, thus avoiding the need for retooling. Retooling refers to the process of updating or changing the tools, equipment, or machinery used in manufacturing or production. This can involve significant investments in new technology or modifications to existing equipment to improve efficiency, adapt to new products, or enhance production capabilities.
However, other segments intended to provide relief have been adversely affected by an influx of low-cost products from China and India, which are perceived as having built-in obsolescence and lower quality, often only lasting half a season.
To remain competitive in the face of porous borders, the company must balance price reductions with quality maintenance. Zimplow is now prioritizing local production to reduce costs and is collaborating with suppliers to drive down expenses.
The logistics segment has also been impacted by cheap Chinese products, which are significantly lower in cost compared to Zimplow’s European-standard trucks, such as Scania. In response, the company has secured a first-class distributorship with FAW, a leading seller in South Africa, to enhance its competitive positioning.
In the third quarter, indicators suggest a potential recovery for the group, and there is optimism for 2025.
However, Zimplow must reinforce its cost management strategies, as another drought is likely, despite expectations of higher rainfall. This scenario may lead to continued low disposable income among farmers. Additionally, the challenge of a persistent influx of low-cost second-hand products remains.
As such, the group needs to enhance its cash flow and cost management practices.
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