In their last act for 2018, ZCCM IH managed to deliver the SENS announcement (published on 28th December 2018) that would reveal the investment group’s half year performance. This was on the back of a big announcements made in the weeks following up to this moment when the company declared that it had increased interests in one of its associated companies as well as inked a Financing Agreement Contract for the construction of a cement plant in Ndola. Furthermore, the firm used this opportunity to gloat about triumphs and challenges during the year.
According to the SENS announcement, “The Group recorded a turnover of K67.5 million for the six-month period ended 30th September 2018 which represents 80% over the turnover of K37.5 million reported during the six months to 30th September 2017. The increase is mostly on account of the consolidation of Investrust Bank following the Group’s increase in the Bank’s shareholding to 71.4%.”
The statement further indicated that “The Group recorded an operating loss of K222 million (Sept 2017: loss K123 million) and received dividends of K44.8 million from Kansanshi Mining Plc (September 2017: Nil). The Group’s share of profit in associate companies was K437.5 million (September 2017: K227.3 million). The performance of the associate companies has continued to improve due to continued increase in demand for copper on the world market resulting in increased copper prices. Overall the Group recorded an after-tax profit of K510 million (September 2017: K87.8 million).”
CEO Dr. Pius Kasolo’s analysts must be closely watching the performance of their portfolio of companies as clearly there were winners and losers in the arsenal of companies under management. There are clear signs that there is weaknesses in the armory that require to be managed at a strategic level. For example, Ndola Lime remains in debacle. According to the firm’s Strategic and Operations development update, September 2018 saw two (2) former employees of Ndola Lime Company Limited (NLC) institute proceedings in the High Court of Zambia to place NLC under supervision pursuant to the Corporate Insolvency Act No. 9 of 2017. When we published “The Achilles Heel in ZCCM IH’s Armory”, we decoded signals of an investment in peril. The ZCCM IH 2017 annual report and other SENS announcements were very clear that Ndola Lime was a problem child.
That is why, “by order of the Court dated 5th October 2018, the Official Receiver was appointed as Interim Business Administrator of NLC. The application for the Business Rescue Proceedings will be heard in January 2019 at which all affected persons (including ZCCM-IH) will be heard”. This is an asset that led to substantial impairments for the group in the 2017 financial year as reported in the notes of the Annual Report.
Under their financial services investment strategy, in April 2018 the firm conducted a Mandatory Offer to purchase shares from all other minority shareholders in Investrust Bank Plc (Investrust) in accordance with Rule 56 of the Third Schedule of the Securities (Takeovers and Mergers) Rules. The Mandatory Offer culminated into the firm acquiring an additional 2,125,890 shares, representing a 26.0% shareholding in Investrust. The firm effectively increased its shareholding from 45.4% to 71.4%. With a bank firmly under itself, this offers the group of company’s opportunity to transform a local financial institution. However, the banks performance has been less than stellar over the last couple of financial years. But with a new strategy and a bit of competitive luck, there could be something to smile about in a few financial years to come. Investors in shares in bank though will have to continue to wait for a little longer. Good news for investors though is that the firm has committed to recapitalizing the bank which should change the course of its prospects going forward.
Other areas were the group was active included Tailings Reprocessing that saw it team up with Horizon Mining Limited through a Shareholders Agreement relating to the incorporated Joint Venture Company (Copper Tree Minerals Limited) in which the companies shared the cake 15.58% (ZCCM IH) to 84,42% (Horizon Ltd). In addition, they acquired licenses for two oil blocks situated in the Western and Muchinga provinces of Zambia. In order to undertake exploratory works on these oil blocks ZCCM-IH entered into a partnership with Oranto Petroleum (Oranto), where ZCCM-IH farmed out a 90% participating interest on the oil blocks to Oranto and retained 10%. Thus far, the firm continues to take a minority shareholder stake in the business which appears to be their strategy for new ventures. It is a way in which legacy firms that have the financial acumen and muscle can hedge against the risk of singular investments.
However, once the investment shows that it can deliver steady EBITDA or requires strategic management intervention, the firm can consider increasing its shareholding in the company. During the period under review, ZCCM IH showed this behaviour by acquiring an additional 50% stake in Kariba Minerals from Gemfields Limited at a total consideration of US$2.5 million. Upon purchase, the management team indicated that they would implement a robust strategic plan aimed at improving production, processing and marketing activities in order to increase profitability of the mine.
Going forward, Pius’ team look set to continue their pursuit for real estate investments. They have expressed interest to invest in the development and purchase of Leopards Square, a mixed commercial property with a unique tenant mix. According to the management team, the opportunity would allow for ZCCM-IH to invest into this property through the purchase into the capital structure of the property at pre-development stage and earn an enhanced return due to development profits/savings.
Furthermore, they have shown intent to dabble in Silica sand mining and glass manufacturing. To achieve this, they have signalled to the market that they have placed a formal offer to acquire the assets held by Kapiri Glass Manufacturing Company (2008) Limited (In Receivership), including the mining rights to the primary silica sand deposit in Kapiri Mposhi. A bold move considering urban legend has it that KGM has seen many iterations of it being revived. However, according to the firm, the transaction has not been completed or finalised, as an injunction has been placed against to halt any further progression on the transaction due to legal action taken against the Kapiri Glass Manufacturing Company (2008) Limited (In Receivership). 2019 will reveal with the firm are deeply keen on this asset depending on the outcome of the litigation matters.