Metal Fabricators Plc at Full Year 2018 – Delinquent Receivables
Manufacturing, ZAMEFA Plc
Rosetta M Chabala CEO ZAMEFA

The Board of Directors at Metal Fabricators Plc. (also known as ZAMEFA) are not too happy. AE Dickson, their Board Chairman, admitted in their annual report for 2018 that the company faced a difficult year. This difficulty was not their own making. Counterparties in their business ecosystem were the reason that the Rosetta Chabala led management team record a drop profit before tax of 381%.

According to SENS Announcement published on 19th November 2018, ZAMEFA’s sales volumes for the year were 19% lower compared to what was achieved in the prior financial year, while the weighted average metal prices were higher by 20%. Fortunately, this resulted led to a net increase of 1.4% and 1.5% in revenue for the Group and Company respectively.

However, the fall in PBT of 381% was attributed to the ongoing slow settlement of export duty and VAT refunds by the Zambia Revenue Authority and slow payments for product by one of their biggest domestic clients.

Although Rosetta’s letter to shareholders indicates that the overall environment in which the company operated in was generally stable, liquidity constraints that were ubiquitous in the financial year across industries was also a factor in their under-performance. Furthermore, during the year, the Zambian Kwacha weakened against the US Dollar by 27% at lowest. This had a significantly negative impact on the results of the Group as a result of remeasurement of the Group’s net foreign currency denominated liabilities into Zambian Kwacha. Her CFO was very busy during the year.

From a shareholder perspective, the Group and Company’s earnings per share for financial year 2018 at (minus ZMW 2.67) and (minus ZMW2.66) respectively which were 400% and 399% lower than those of the prior year both at (2017 – Zmw0.89). Out of no fault of their own Rosetta had to face shareholders with this dismal news.

Credit to the ZAMEFA CEO though is that she runs an efficient company and this is how they have been able to create long term sustainable competitive advantage. Her company uses the Lean Enterprise System. Lean enterprise is the production and management philosophy that considers any part of the enterprise which does not directly add value to the final product to be superfluous. Lean enterprise focuses on value creation and the elimination of waste and non-essential processes. Therefore, if we eliminate the effect of counterparties (suppliers from a Porters 5 forces perspective), one can understand why the company has been profitable year on year.

We had earlier reported in our article in March 2017, on how Rosetta’s astute leadership was able to outfox the prospects of eroded value through her management team’s decision to seek out the East African market for value. This is why it is not surprising that Rosetta’s understanding of the Zambian business environment would have her take off her CEO hat and wear a lobbyist one. In add statement attributed to the company, the Group continues to focus on strategies to improve its liquidity by among others, engaging Senior Government representatives as well as the ZRA to address arrears receivables.

Other strategies that Rosetta is employing are cost cutting efforts as decoded in her statement from the 2018 annual report which states We continued to focus on operational costs reduction to overcome among others the power tariff increase applied in the previous year that impacted negatively on copper rod and wire and cables production cost”.

Another area we seldom CEOs in Zambia give considerable focus on in their letter’s to shareholders is the importance of their staff. Rosetta comments on how her management team are working tirelessly to improve the professional lives is commendable. Her management team has put in place measures to advance and drive the Group talent development by uplifting the literacy levels of its shop floor, supervisory and Managerial staff by fully sponsoring the studies and coaching programs with the aim of strategically up-scaling skills to increase literacy level, elevating on-the-job competency and issues-based comprehension of operations.

Rosetta is candid in her belief of what 2019 holds for the company. She believes that the financial performance for the next financial year is expected to improve provided that the burden placed on the company’s working capital by the current VAT system is relieved by the implementation of the General Sales Tax (“GST”) system and the group can return to a more normal level of operating activity. She is one of the first CEOs to show admittance that she is not afraid of forthcoming new tax regime.

For shareholders, with the fundamentals still in place, ZAMEFA’s 2019 prospects will need to be closely watched. All the pieces of the business environment puzzle have been laid bare by the CEO and she looks set to take the fight to the corridors of power to ensure every coin that is owed is paid in full. We wish her all the best.


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