Zimplow Limited, the country’s largest maker and distributor of agricultural implements, says it is worried a further appreciation of the rand could stoke steel prices and other inputs, further squeezing margins, which have dropped significantly since the economy dollarised last year.
The Zimbabwe Stock Exchange (ZSE)-listed agro-industrial input supply firm currently imports about 45% of its steel requirements from South Africa to counteract local shortages arising from capacity problems at the Zimbabwe Iron and Steel Company (Zisco), Zimbabwe’s largest steel producer.
Zimplow operates three divisions — Mealie Brand, Tassburg and CT Bolts — and all of them require steel to manufacture animal-drawn implements and hoes, bolts and nuts and a wide range of other fasteners.
In the first half of the year, steel prices rose by an average of 19% as the rand strengthened against the greenback, Zimbabwe’s base currency.
The appreciation lifted the country’s second most traded currency from its all-time low of ZAR12/USD at the beginning of 2009 to as high as ZAR7,20/USD by end of June.
“The strengthening of the rand is pushing steel prices upwards and significantly adding to the margin squeeze,” Zondi Kumwenda, Zimplow chief executive officer, said.
“Steel prices are not the ones affected. Other raw materials, general consumables, repairs and maintenance costs are affected as well.”
In spite of this cost spike, Zimplow reported improved earnings for its first half to June 30.
Earnings before interest and taxation (EBIT) rose 54% to $369 219 from $239 919 over the same period a year earlier.
Revenue surged 72% to $3,4 million from about $2 million the year before, led by domestic sales of animal-drawn implements and hoes.
The implements are manufactured and distributed by Zimplow’s largest division — Mealie Brand, which accounted for 70% of total revenue.
Domestic sales soared 111% as agriculture recovered from a decade-long slump, buoyed by tobacco dollars and resulting in increased capex votes by the farmers.
The country this year reported a glut at local auction floors and total deliveries are estimated to reach 114 million kilogrammes.
Zimplow says it felt the pinch of depressed earnings in the country’s cotton-growing sector.
“We’re affected by the price fight between cotton farmers and cotton companies,” Kumwenda said.
“For the time being, demand for implements is being driven mainly by tobacco farmers.
“Cotton farmers were affected in that input prices were high at the beginning of the growing season, but later came down. As a result, the producer price of cotton is far less than what the farmers spent in growing the crop. These poor returns have also affected their spending on farm implements.”
During the period under review, the value of exports rose 10% to $848 904 from $774 072 the year before, driven by a firm demand for animal-drawn implements by countries around southern Africa, which have benefited from donor support. Zambia and Malawi reported maize surpluses.
The shipments per unit increased 23% to 8 789 from 7 171 in 2009.
“We are still focusing on regional expansion, it’s a hungry market. But all depends on how good the season is going to be. It’s a seasonal game.”