HomeBusiness DigestZimplow thrives on appropriate technology

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While most companies enjoyed some form of growth up to 2010, the expectation is that 2011 results  will start to separate those that have been merely riding the general wave of success based on recovery from the “lost decade” and those that have sustainable business models.

 

Local volumes in Zimplow’s flagship Mealie Brand unit, which manufactures basic animal drawn farming implements, increased by 46% surpassing GDP growth of 9,3% and the expectations of some industry pundits.

Zimplow’s other operating units, CT Bolts and Tassburg, also enjoyed growth in both volumes and profits.

So successful was 2011 for Zimplow that they managed to declare a dividend of 0,27 cents per share despite a 51% increase in electricity tariffs, a 20% increase in labour costs, a 33% increase in raw material (steel) costs and a higher effective tax rate. The company even managed to make an acquisition by way of a share swap for a 49% stake in a South African company,  Afritrac, that is engaged in import and sale of animal drawn implements and tools. 

 

Afritrac was acquired in exchange for 9,2 million Zimplow shares worth US$552 000. The  acquisition of Afritrac will help Zimplow broaden its income streams. 

Furthermore, the company can capitalise on the existing distribution network which Afritrac already has in South Africa. Afritrac is a profitable business and in its 10 months it contributed US$1,5 million to revenues and US$144 816 to profit before tax.

Management at the company indicated that they still expect further growth in 2012, underpinned by increased volumes in new markets such as Angola and Sudan. The   growth comes despite erratic rain patterns in the region, particularly in East Africa.

Corporate success cannot be achieved without capable management and Zimplow seems to be a well run company. Also, a company needs to be well placed strategically to be able to thrive in any environment. Having survived its incorporation in 1939 with its key product — animal drawn farming implements — little changed, one is tempted to think that Zimplow is well placed to thrive in a market where innovation is lacking. Not to belittle them, Zimplow have consistently delivered products as demanded by the market. In fact it can be argued that the company has played a key role in the agricultural sector by providing the appropriate implements for small scale farmers to produce.

Interestingly, Zimplow has succeeded and might continue doing well with the same basic product range at a time when there is use of other advanced farming equipment. Long after the invention of the tractor, the combine harvester and other such technologies the majority of farmers in Zimbabwe and the region continue to use labour intensive technologies for various reasons. Ironically, all this has worked in favour of Zimplow. This is regardless of having companies like Tractive Power Holdings  which have franchises to distribute advanced farming equipment locally.

The reasons why mechanisation of agricultural production remains elusive for Africa is multifaceted; it has to do with lack of finance required to acquire the new technology, an ineffective government mechanisation programme and that mechanisation is not a priority for most local farmers.

Lack of finance is largely to do with the system of land tenure. Banks simply will not lend without having some form of security and in agriculture land title is usually given as security. Farmers cannot make use of short-term financing from banks as it is expensive and not suitable owing to the long cycle. Agriculture operations such as tea plantations require cheap and long- term funding which most banks are not offering. 

 

Furthermore, most, if not all, the subsistence farmers do not have enough money to achieve the required level of mechanisation. Again, the thrust of subsistence farming is to produce just enough to feed the family hence mechanisation operations to boost productivity are not a priority.

The various government farm mechanisation programmes that were carried out between 2004 and 2008 seem to have failed to yield the intended results. Some of the equipment that was distributed to farmers is lying idle. There are farmers who are failing to service or fuel the tractors, and some of them reportedly sold the equipment for quick cash. We believe the government should have capitalised institutions like District Development Fund Zimbabwe or Arda so that they could carry out tillage services for farmers.

As things stand the majority of local farmers and those in the region will continue using ox-drawn ploughs and other hand farming implements. Though it might seem backward, we believe that Zimplow will continue to successfully supply these simple tools and make profits. Already company management is projecting growth in sales and profitability of 20% and 15% for the 12  months to  December 31 2012.

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