Zimplow is eyeing blue chip status — Nyakudya

AT a time many companies have struggled to make ends meet in the past financial year, listed agro-industrial firm Zimplow Holdings Limited has delivered a strong set of results. In the face of the Covid-19 pandemic, the company is seeing opportunities, even in the middle of unprecedented disruptions to global product chains. While the company is confident in its robust critical success factors, it has, however, bemoaned currency instability, saying continued uncertainty around currency will stall key government-driven infrastructure projects. Business Reporter Melody Chikono (MC) this week spoke to Zimplow CE Vimbayi Nyakudya (VN), who shared insights into the company. Below are excerpts of the interview:

MC: You have delivered a strong set of results, as shown by an 85% increase in turnover at a time the country’s economy is in the doldrums. What have been the key drivers of your performance?

VN: Firstly, I would like to congratulate and thank my team across the country at every level for delivering such an encouraging performance. Naturally, our people are a key driver of our business. Equally important are our customers who have stayed committed to our leading brands. Two of our units, Powermec and Mealie Brand, achieved volume growth.

The power outages increased demand for alternative power. Our Perkins engine generators have been the preferred solution by farmers and the rest of industry. Growth in export volumes was key to Mealie Brand and therefore the group’s performance. The focus on quality sales with Farmec, Barzem and CT Bolts, and the achievement of supply chain advantages, improved margins and the resilience shown in our performance.
MC: You also had a good mix of exports which saw your profit surpassing last year’s in real terms. How have your exports been affected by the Covid-19 pandemic and how do you see your turnover in full-year 2020?

VN: Indeed, Covid-19 will affect our export sales performance as most of our markets have been on lockdown. There has been little international trade happening with borders closed.

However, the pandemic may also present opportunities with supply chain disruptions working in our favour. We can provide a quick turnaround to export sales in the region whilst our Chinese and Indian competition may take longer than the standard three months as the battle with Covid-19 continues.
MC: What has been the general effect of Covid-19 on your operations?

VN: No business will be spared the impact of Covid-19. Aggregate demand will decline as economic activity slows. More than 50% of our workforce as Zimplow could not come to work when the impact of Covid-19 started to be felt in Zimbabwe. The dividend is being funded out of retained earnings. Bear in mind this is a dividend for the year to December 31, 2019. Naturally, we have been achieving more on after-sales service compared to whole good sales as our customers slowed down on capital expenditure amid the uncertainty.

In addition, we have experienced delays in the delivery of shipments that were in transit. South Africa implemented a lockdown restricting the movement of our products that were coming via the Durban port. This further limited our ability to service customers despite our sector being regarded as an essential service.
MC: A number of companies have deferred the payment of dividends, citing uncertain and going concern issues as a result of Covid-19, but you declared a 3,78 cents per share dividend. How do you intend to finance this, given the uncertainties ahead?

VN: As explained earlier, Covid-19 represents a live risk to the going concern of any organisation currently operating. However, for Zimplow the business has demonstrated capacity to perform in spite of the declining economic activity. This is testimony to the good work that the board and shareholders put in after the merger in 2012, through a series of rights issues, restructuring of the organisation and the balance sheet, reducing the gearing and eliminating foreign liabilities. We have a strong balance sheet malleable to the economic shocks that we are currently experiencing. The positive execution has been a significant platform for Zimplow to afford such latitude to return the favour by declaring a dividend in these difficult times.

We also serve the agriculture, mining and infrastructure, mostly alternative power sectors which are essential to the functioning of the economy, hence our services having considered essential during the lockdown. This has been crucial in minimising the severity of the implications of Covid-19. In addition, the ability to reflate or adjust our cost structures, as a result of the past restructuring programmes, means we can limit redundancies and therefore employ other measures to preserve the balance sheet strength. The dividend is being funded out of retained earnings. Bear in mind this is a dividend for the year to December 31, 2019.

MC: During the period, Farmec, Barzem and CT Bolts suffered volume reductions but their revenues went up. What were the drivers of low volumes and how do you intend to improve in future?

VN: The change in Farmec’s market dynamics towards a certain range of horsepower affected volumes in 2019. This has since been resolved with the support of our principal and will boost our volumes in 2020.

At Barzem, the efforts that we have put through together with our principals and partners, including the appointment of a substantive general manager to boost performance, are really paying off. We expect the volumes performance to improve in 2020.

CT Bolts is expected to improve in performance as the business has managed to transition from a position of volume decline to that of improved volume performance.

MC: What have been your major challenges and your fears in Zimbabwe?

VN: Like any other market, Zimbabwe has a fair share of challenges affecting business. Currency instability remains the elephant in the room. Continued uncertainty around currency will stall key government-driven infrastructure projects. Projects such as the construction of the Beitbridge-Chirundu highway means reduced activity for contractors that require earth moving equipment and after-sales service from Zimplow. The continued softening of producer prices in light of inflation may deter the farmers from recapitalising and expanding their operations. Exports may continue to suffer, as a result of exchange rate distortions discouraging production by the mining sector.

MC: What have been your key innovations in the past five years?

VN: The key innovations, or maybe I can call them critical success factors or foundational pillars of my leadership at Zimplow, have been based on execution.
Firstly, I provided clarity of direction or robust internal organisation. It was important that everyone was clear of what their contribution to the bigger picture. Internal organisation is a big thing for me and my executive team. Hence, we spend more time planning and measuring our effort to ensure that everything is working. All our resources should be sweating to produce value, with no redundancies whatsoever.

Capital allocation is also very important for us. As a group of companies, we study the contribution of every one of our product lines. Our capital is deployed where we obtain the greatest value through achievement of better margins or by speeding the working capital cycle. A well-managed supply chain starts from supportive suppliers.

Therefore, we had to work on improving the relationships with our principals in order to ensure collaboration at all times. I endeavour personally or through my team to have the expectations on both sides laid out and met at all times.

The last pillar is the customer. A satisfied customer is the best salesperson. Keeping our demand value-chain oiled, by having the necessary back support, is a key part of who we are as Zimplow. Every customer, regardless of their background, understands performance, and that’s the language at Zimplow. I believe the four points I’ve stated are the foundational pillars for Zimplow to achieve the permanent blue-chip status that we desire.

MC: Let us talk about your investments. What can you say about your past, present and future capex investments in Zimbabwe?

VN: As a business, we want to grow. We have been upgrading our fleet and our premises. Our desire is to show our commitment to the highest standards that our customers expect of us. We gave a facelift to our Farmec Southerton premises in 2017. We have recently completed the Barzem Msasa facelift. We want to continuously improve our workshops to world-class standards.

MC: How do you see Zimplow in the next five years and what are likely to be the drawbacks to the dream?

VN: To achieve blue chip status. Basically, this means Zimplow has to be a large company, that is, our scope has to cover more than what we currently serve with respect to markets, products and business units.

We will need to be achieving stable growth during good times and resilient results during economic shocks, ultimately paying regular dividends or grow them over time. Above all, our reputation in the industry has to be that of industry leaders, at any level that is, whether you are talking about our business units or our management.

MC: In line with the volatile environment, what strategies are you putting in place to stay afloat?

VN: We are already a diversified group with all our business units anchored on the distribution model. Our business units also participate in the key sectors of the economy and, now, with Covid-19, defined as essential services. As an organisation, we have constantly worked on refining our capabilities, having a strong balance sheet, one that is able to withstand economic shocks, and having the right human capital, with the right skill and experience in the markets we operate in. We are further sharpening our product development. In so doing, we are not only focussed on building a resilient organisation, we are also building one that is able to grow.

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