HomeBusiness DigestCotton price wars hamstring Zimplow

Cotton price wars hamstring Zimplow

A POOR 2011/2012 agricultural season  following erratic rains and a standoff between  farmers and buyers over price in the cotton-marketing season have contributed to Zimplow’s US$175 686 loss in the six months to June.

In the period, there was a 16% drop in total implements at the company’s flagship –– Mealie Brand –– to 20 089 units from 23 914. Local implements were down 49% to 9 359 units from 18 183. However, exports were up 87% to 10 730 units from 5 731.

CEO Zondi Kumwenda said the group had returned to profitability in the month of July, recording a pre-tax of US$65 417 and is set to clear out the year-to-date loss of US$56 230 in the second half.
Kumwenda said there was strong demand in the region but the 2011/12 agricultural season characterised by poor grain harvest and the cotton price wars saw local sales units plummeting by 49%. Furthermore, he said, there was general insufficient liquidity in the economy.

Kumwenda said:“What worsened the situation is that proceeds realised from tobacco were insufficient for any investments into farm implements by farmers as 63% of tobacco sales were through contract arrangements.”

Kumwenda said what had been noted was that distributors would rather stock up on fast moving consumer goods rather than products such as ploughs, which generally have a longer shelf life.

CT Bolts operations production was up 27% to 65 785kgs. Mild steel bolts were down 19% to 48017 and nails were down 30% to 9 914 kg and screws also recorded a drop in units.

Kumwenda said despite a drop in overall sales units, CT Bolts recorded a 6% increase in dollar revenue as a result of the change in the sales mix.

“The recovery of the mining sector saw CT Bolts selling a higher number of HT Bolts than in the prior year, whose dollar contribution was significant to offset against a 7% drop in sales volumes.  Kumwenda also said low capacity utilisation continued to put pressure on profit margins.

Tassburg operations were down across the board, with verrandah nails facing competition from China. Sales volumes in kgs dropped by 15% and revenue declined 13% from prior year.
At Afritrac, implement volumes increased by 15% while spares went up 38%. Kumwenda said the subsidiary adopted aggressive marketing strategies as it seeks to consolidate its market share in the Western Cape, Swaziland and Lesotho.

“Erratic rains have slowed down the anticipated sales growth,” he said.

Kumwenda said the major cost movers were employment costs driven mainly by a 5% increase in labour and finance costs as a result of the prospective takeover of Tractive Power Holdings, which required bridging finance reflected on the income statement.

Revenue for the group was down 12% to US$4,3 million, with domestic contribution down 25% to US$3,108 million. The group reported a pretax loss of US$133 122 from a profit position of US$677 095. Mealie Brand remained the main revenue contributor at US$2,389 million.

Finance director Francis Rwakonda said the balance sheet included a US$3 million investment in TPH recorded as available for sale and also included in financing activities on the cash flow.

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