As I swift through the sweet Managing Director’s statement in ZamSugar’s 2016 Annual Report, I cannot help but feel excited for newly appointed Rebecca Katowa. She takes over a sweet company that is literally sweetening value from Mazabuka…much to the delight of shareholders.
The last two financial years faced the wrath of falling commodity prices in the European Union which hurt the Zambian Illovo Sugar branch. However, in the midst of falling EU prices, the regional and yes Zambian sales were up 60% and 6% respectively. This came on the back of the company refocusing its energy on its resources and capabilities (this is key for a company that seeks product differentiation over pricing). They have invested in product alignment that is set to encourage local cane growers take advantage of the company’s resources. This is set to grow the company’s output in the medium to long term.
Despite Marco environment headwinds, the company was able to sweeten its revenue by 7% and earnings were up by 14%. What is fantastic for investors is that their plowback ratio is over 40% (the company choses to retain part of its profits to reinvest in the company) leading to a growth in equity. Literally sweetening value. Cost management has also been reflected by a marginal increase in cost of sale by only 4%. The return on capital employed is 17% whilst return on equity is 15% for 2015. This may be a source of concern as their gearing is over 90%. This is on the back of reinvestments that are being made to sure up their factory. Worrying for the short term, but it shows that they mean business by investing in their core business. Long term, this will pay off.
Although Rebecca has noted improvements in cost reduction and continuous improvement programs, the efficiency of the sugar company should be on her top 10 list of items to tackle. Their working capital cycle went up from 44 to 61 days between 2014 and 2015. Taking longer to realized cash can become problematic for any business. However, she knows that she is getting the best out of her workforce in terms of labour productivities which is up by 40%.