A company that earns income from the payment of dividends, rent or interest is called an Investment Holding Company. The investment holding company does not produce goods or offer services itself, and instead acts as a holding company by owning shares of other companies. One example of an investment holding company is a ZCCM IH.
We borrowed the above definition from business dictionary online because when we got hold of the SENS Announcement published on 16th January 2019, the non-astute would simply take the top line of their audited abridged and see that revenue for the year ended 31 March 2018 reduced to K 60.9 million from K 95.3 million in 2017. However, by definition, we must look at the mid-section of their income statement. That is where we can see how ZCCM IH creates value: Profit from continuing operations. By continuing operations, ZCCM IH boasts of a plethora of companies has seen it emerge as one of the most formidable investment groups in Zambia.
The company provided the following narrative on its performance for 2018. “The Group recorded turnover of K61 million (2017: K95 million). The decrease in turnover is attributed to low sales at Ndola Lime Company Limited due to increased competition in lime market as well as technical challenges which negatively affected the production and sales of lime and related products.”
Ndola Lime Company Limited’s (Subsidiary) continued its loss-making position, which contributed an operating loss of K167 million (2017: K1, 152 million). This asset continues to test Dr. Pius Kasolo’s patience. Shareholders in ZCCM IH securities will be looking closely and what the company does next with the problematic asset.
The Group’s reduction in operating profit to K47 million from K848 million in 2017 was largely attributed to the impairment of the investment in Konkola Copper Mines Plc amounting to K218 million; and the decrease in copper price participation income from K719 million (2017) to K360 million (2018).
On the upside, the Group recorded a positive share of profit from equity accounted investee companies of K 689 million (2017: loss K 189 million). This movement represents 464% increase that largely support the surge in Profit from continuing operations. The portfolio of companies makes sense.
The Group reported earnings of K843 million (2017: K 729 million) representing 16% increase, driven by improved production volumes of copper in most of ZCCM-IH’s investee companies and an upsurge in copper prices during the year. This is on the back of the improvement in price on the London Metal Exchange for copper price which increased by 14.8% to US$ 6,724/ton (2017: US$5,858/ton) during the year.
In terms of the Group’s total assets, they saw an increase of 8% from K9, 579 million (2017) to K10, 332 million (2018) on account of increase in the net assets of investee companies whose performance continued to improve during the year. Specifics of which investee companies will be published once Financial Insight gets a hold of the full Annual Report for 2018.
For now, shareholders in ZCCM IH will be waiting to have their say at the upcoming AGM slated for 28th January 2019. On the table is a proposed a final dividend of K0.61/share for the year ended 31 March 2018.