ZAMBEEF Half Year Performance 2018
Zambeef Products Plc

In a period that was marred by increases in fuel and electricity and the outbreak of foot & mouth and Cholera, it is impressive to hear a board Chairman be proud of his food producing company’s performance. Revenue for the half year period was up by 6%. This is the success that was echoed in Zambeef’s Chairman Dr. Jacob Mwanza when the company announced its half year performance for 2018.

In his statement published in SENS Announcements (published 6th June 2018) from LUSE, Dr. Mwanza stated that “The volatile economic conditions in Zambia over the previous two years, including sharp depreciation of the Kwacha against the US Dollar and relatively high inflation, presented challenges for the business. I am pleased to say that this period of uncertainty appears to be behind us. We are entering a period of relative stability in the economy, supported by tight fiscal and monetary control by Zambia’s Ministry of Finance and the Bank of Zambia.” The Chairman is clearly bullish about the prospects for the second half of the financial year. Right so we believe.

Dr Jacob Mwanza Board Chair Zambeef

A recap of the last two financial years will show the injection of much needed capital through an equity purchase by CDC. This followed the subsequent disposal of the non-performing asset in ZAMPALM (sold 90% of it to IDC for USD 16M). This is a strategy that indicates that the Zambeef intends to stay the course in its core business. This was further echoed in the Chairman’s statement which read “The Group will maintain its focus on expanding the retailing and distribution footprint and on improving margins and increasing profitability. We will continue to expand the Cold Chain Food Production capacity to meet increasing consumer demand; complete the build out of the new stock feed plant at Mpongwe and continue to strengthen our balance sheet, through the disposal of non-core assets.” With Mpongwe coming online, property plant and equipment under assets on the balance sheet increased by 42%. This is the signal that a revenue injecting asset had now been added to the plethora of agricultural assets.

With an increase in its retail and distribution segment, the company is getting its products closer to consumers through its Micro outlets (currently they have 205 stores nationwide) which have seen the company grow its revenue by 6%. Furthermore, what is even more impressive is its operating profit improving by 41% in comparison to the same period in the last financial year.

The company’s promising value driver is its stock feed division. With the newly commissioned Mpongwe plant, which has now reached 42% capacity, the division continues to be a strong profitability and revenue driver for the business.

There is also evidence of improved operational efficiency. The cropping division recovered with EBITDA growing 23.2% as a result of better expected yields and reduced overheads around manpower costs. All this in a period that was marred by low commodity prices.

Ex Zambeef Co-CEO Tim Pollock exited for personal reasons

On the leadership front, the period saw the exit of Tim Pollock on May 24th through resignation (personal reasons according to the statement). Now, if you have followed the story of Zambeef post CDC becoming equity partners, you will recall that Carl Erwin, the long-time Joint CEO also exited the leadership role (an exquisite farewell party was held for the long serving co-CEO at Pamodzi Hotel indicative of his importance to the Zambeef story) citing personal reasons. It appears personal reasons continue to be the reason co-CEOs are exiting the role leaving Francis Grogan as the sole CEO (last man standing) to lead the conglomerate.

With the half year earnings per share (EPS) now standing at 4.09 ngwee, we estimate the company will record double its forward EPS to north of 8 ngwee. Our estimate also takes into consideration that the company in the first half recorded a loss from discontinued operations which further shaved off value.

For investors in Zambeef, the excitement of a potential dividend will no doubt be there. In their 2016 annual report (AR), the board signalled the adoption of a policy of regular progressive dividend payments to shareholders from 2017 onwards. With their current performance, there is beef at the end of the tunnel.

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