Business evolution

On my way back from the Zimplow analyst briefing yesterday something crossed my mind and I shared it with a colleague. “African farmers will not use hoes and ox-drawn ploughs. 10 years from now farmers could be tilling the land using better, cheaper and easier technology.” What is profound about this is that it is so true and somewhat frightening. We already use tractors don't we? Somewhere in Asia they even push tractors. The world is evolving very quickly, and one day we won’t be relying on these implements. It may not be next year or even in our lifetime. My question is what are Zimbabwean companies doing to ensure that they are in existence and still building shareholder value 5 or even 10 years from now.

In an earlier article (16 November 2010) I wrote about business models and I focused among other things on how businesses such as Delta were anchored on the premise that people drink beverages. That habit will probably never change at least not in our life time. You can read it here http://briefviews.blogspot.com/2010/11/business-models.html. Will Zimplow be producing the same ‘badza’ (hoe) and gejo (plough) and still find customers for it? A friend of mine shared with me a book called “ The Singularity is near written by Ray Kurzweil.” I haven’t read it myself but I saw a few excerpts that were fascinating and insightful. The little that I gleaned from this book left me with little doubt this guy was onto something not that I agree that computers should be part of our bodies etc. I agree with the fact that things are changing and one can be left behind if they are unprepared to embrace or profit from them.

All I am asking is are we preparing for the future enough? Or we are just doing what our predecessors have always done and hope that it will never change. In this week’s press there was an article that caught my attention. Scores or clothing companies have been closing down every year because of cheap imports, high labour costs etc. Yet Zimbabwe has some of the best tailors and cotton! There are several other companies in our other industries facing the same plight in Zimbabwe and are on the brink of collapse.

Do Zimbabwean companies purposefully invest in Research and Development? I love getting dividends but would rather hear a company saying that they are forgoing paying a dividend because they are investing in the new way of ensuring that profits continue growing. It will be interesting to see how companies like Zimplow evolve. Time will tell.

Head on the block

Zimplow (http://www.zimplow.co.zw) will be the first company to put its head on the block when it releases its full year results covering the period January to December 2011 on Thursday the 23rd of February 2012. The market already knows one or two things about these results judging from the share price movement in recent days! They must be good! The share price which had dropped to 6c is trading just short of 9c, a 50% jump in one week. WOW!Some will say dont read too much into this. i have witnessed this trend being repeated over and over again in Zimplow and a few other counters over the years.

Zimplow’s half year results to June 2011 met the market’s expectations and the fact that no interim dividend was declared on account of the need to conserve cash meant that the market was indifferent, as the price more or less stayed the same. The company was one of the first to declare a dividend in the dollarized environment and being predominantly a cash business it is expected to continue paying a dividend. The company’s management is very aggressive and at the company’s AGM last year they said they were confident they would post results that were above an earlier guidance given to analysts at Interim stage. Aggression is good but I hope a few lessons have been learnt after the company had $400,000 trapped in soon to be resuscitated Renaissance Merchant Bank.

NSSA has generously rescued the company and its shareholders from a potentially embarrassing loss of value! If management announces that they have since recovered that money, the share price could jump based on this news as it means the company will be able to pay a handsome dividend.

I always want to look at both sides of the coin. Steel prices, fuel costs, transportation costs might diminish operating margins going forward; impacting on the company’s bottom line. The Agricultural sector is in its third straight year of growth and this is good news for Zimplow, which is a direct beneficiary of increased output. I particularly like the company's business model which is really a simple one, turn steel into implements, nuts and bolts that are direct inputs in productive sectors of the economy. The company is and will always be a clear barometer of what is happening in our economy, and i sense that Thursday will be a good day as the company releases its results. Those of you who enjoy charts can enjoy the Zimplow chart below covering a three year period. Notice how the share price seems to move in steps. Could we see Zimplow stepping up again in coming weeks.

It will be important to see how the well documented liquidity challenge will have affected the company. The second half of the year is always good for the company. The coming back on stream of Zisco (now Newsteel) will reduce operating costs etc and may very well improve margins in the future. This is one good company that has got lot going for it, I say. There you have it, Let us see what Thursday has in store for us.

Old Mutual comes to the rescue!

What a week last week was. I recall pointing out that the year 2012 was to be a year of corporate actions and my observation is proving to be correct. Last week alone we heard from Ariston, CFI and Rio Zim, Aico. They were all advising investors to exercise caution as they were engaged in one activity or two. The most significant of them all is the news that Rio Zim has secured $35m which will allow it to move foward if banks and creditors accept the proposal. I am personally pleased with the fact that one of the largest shareholders in the company Old Mutual has stepped foward to rescue its investment. (totally unrelated to this there was also news that Old Mutual will be issuing a special dividend to its shareholders of 1billion pounds, more on this when i find out more)

When the price of Rio was plummeting on the back of threats to place it under judicial management i was one of those who wondered why this should happen at all. After all Rio Zim is one of the largest listed mining companies in the country at least by assets. I said to myself if management could just sell its 19% in Murowa and wash its hands of Diamonds that surely could add a substantial amount of money that would see it pay off its shareholders and recapitalise its gold business. I guess i wasnt the only thinking this. A solution involving major shareholders is always the best approach to solving any problem within a company and i hope creditors and bankers respect and accept the proposed offer.

Clearly the benefits of having a functional Rio Zim far outweighs the short-term benefit of being paid back. If things return to normal at Rio Zim there will be more jobs created, more business for the current creditors and more deposits for the banks, we all know they need them.