The ubiquitous preposition by many that are currently or have built is that ZAMEFA provides the best copper cable for doing the electrical wiring for all construction projects. Some even argue that City Center is the best place to get original “ZAMEFA”. Little did I know that this company based in Luanshya is actually owned by General Cable Corporation, a company incorporated in the United States of America and listed on the New York Stock exchange. The principal owner of the company is Phelps Dodge Africa Cable Corporation (PDACC), a wholly owned subsidiary of General Cable Corporation (General Cable) and boasts of a 74% stake in it.
What is interesting from their annual report is that their value is mostly generated through exports (71%) of the copper cable, primarily to South Africa. Small wonder, they also report suffering a huge haircut due to the wrath of the plummeted Kwacha in 2015. Despite the macro issues that plagued many companies, ZAMEFA can boast of an impressive order book going into 2016 with substantial orders for Zesco Limited – a zero sum effect as they had lost some business from the placing of some mines under care and maintenance.
Sales of the company may have flattened, but it’s the operating activities that make interesting reading. Like any subsidiary that borrows money from its parent, General Cable came to collect a substantial amount of the debt it was owed by the subsidiary. The completed payoff wiped out all its debt leading to 0% leverage in 2015. Furthermore, currency write downs led to negative earnings in 2014 and 2015 masking what could have been reported as fantastic financial years.
Its return on capital employed improved by 33%. This can be attributed to improvement on its working capital management by collecting revenue quicker in 2015 compared to 2014. Its Labour productivity improved slightly despite a 2% drop in staff numbers. However, return on equity employed was hurt during the period which does not make good news for investors keen on value growth in the short term. Equity reduced by 54% in the period under review with less earnings being retained in 2015 (less profit reinvested back in the business).
Investors will need to keep an eye on commodity prices as copper is a key ingredient in the manufacture of the cables. As global demand improves, an exported focused company such as ZAMEFA with currency protection mechanisms in place could yield great value.