Wait a minute! Just when we thought Zambeef could not come in any stronger in 2018, the company issued a SENS announcement on 5 December that signaled a restatement of their full year results. But before one gets excited that more money has been generated from revaluation of assets, it is important to understand what a restatement is.
A restatement is the revision and publication of one or more of a company’s previous financial statements; it is necessary when it is determined a previous statement contains a material inaccuracy. A negative restatement often shakes investors’ confidence and causes the stock’s price to decline (hardly an occurrence on LuSE, but these things do happen), but in the case of Zambeef, they are reporting a positive restatement!
Their statement read, “In accordance with the Lusaka Securities Exchange (“LuSE”) Listings Requirements, the Board of Directors of Zambeef Products Plc (“the Group”) hereby advises the Shareholders of the Company that there has been a revision to the Earnings per Share and Headline Earnings per Share for the Year Ended 30 September 2018. They are expected to be approximately 223% higher than for the Year Ended 30 September 2017 rather than the 163% reported on the 21 November 2017.”
The specific causes of the restatement are explain in the statement and indicate that the “financial Statements for the year ended 30 September 2017 were restated and the surplus on revaluation of property, plant and equipment that was included in the statement of changes in equity has since been included under the other comprehensive income. This adjustment has affected the income statement by showing a “Total Comprehensive Income for the Year” increased from the original negative ZMW 27,922,000 to positive ZMW 761,873,000.”
The mechanics of financial statements indicate that A revaluation surplus is an equity account in which is stored any upward changes in the value of capital assets. If a revalued asset is subsequently dispositioned out of a business, any remaining revaluation surplus is credited to the retained earnings account of the entity. In short, the revaluation has had a positive effect and caused an upward surge in retained earnings.
The company is coy in assertion of the fundamentals that led to the profitability of the company in this financial year remain unchanged. Their statement indicates that “The main movements in profitability have not changed and are still attributed primarily to the following points: Revenue for the Group increased by 14.2 percent in ZMW while Gross Profit margins increased from 32.8 percent in 2017 to 34.5 percent, resulting in Gross Profit increasing by 20.1 percent for the Year Ended 30 September 2018. Consistent revenue growth through expanding the retail network and driving Cold Chain Food Products and stock feed operations with like-for-like revenue growth of 12.8 percent in the retail network was one of the key drivers of growth. The Zambia Retailing Macro stores alone, had a revenue growth of 63.5 percent in ZMW. The Group has achieved a Profit After Tax of ZMW23.8 million compared to ZMW4.4 million in 2017.”
When announcements such as these come, investors are often advised to trade with the affected securities with caution. Likewise, it’s as investors prepare for the coming AGM, these are key questions that can be posed to the CFO so that an understanding can be made on what this means to the value creation preposition of the company.