ZAMBEEF – 2017 HALF YEAR REVIEW
Agriculture, Retail, Zambeef Products Plc

In the first week of June 2017, Zambeef published its half year results. Shareholders were keen to see how the company had performed post the publication of its 2016 annual report. We reviewed the 2016 annual report and were keen to assess how the company was doing in the first 6 months. Its chairman, Dr. Jacob Mwanza, lamented that the first six months of their financial year had been impacted by the challenging economic environment in Zambia and a major drop in soft commodity prices. This statement is significant because Soft commodities are basically made up of commodities that are grown, rather than mined. Examples of products in the soft market include cocoa, coffee, cotton, orange juice and sugar. According to analysts in commodities, it is important to note that trading in this market involves substantial risks due to their volatile nature. To put it into perspective,Zamsugar whose annual report we recently reviewed, indicated that sugar prices in the EU and sub Saharan region we volatile leading to a haircut in projected revenue. Therefore, Dr Mwanza’s statement ties in with the challenges that Zambeef faced in the first half of the year.

Their performance at half year in 2017 compared to 2016 shows revenue marginally growing by 3.54%. The Chairman attributes this to the reduction in consumer spending. Operating profit and PBIT reduced by 63.7% and 92.5% respectively. This was partly fueled by the increase in Cost of sales by 16%. Total assets increased by 10% due to significant upward movement on Goodwill, Plantation development expenditure and Inventory. The notable 34.3% increase in Inventory reaffirms the Chairman’s statement of product not moving from freezers fast enough during the period under review.

In terms of working capital, payables and receivables were down by 18.5% and 5% respectively. Furthermore, there was a 34.5% reduction in Interest bearing obligations. This is a combination of short term and long term debt which we believe the company was averse of owing to the high interest rates in the market. In addition, let us not forget the CDC endowment we reported on in the 2016 review.

Although earnings per share dropped by 92%,the astute shareholder must focus on the developments in the macro environment which the Chairman emphases will turn the fortunes of the company around. Falling interest rates with the banks will inevitably translate to an increase in consumer spending as consumers begin to unlock liquidity from the market. In addition, the joint CEOs in Dr Carl Irwin and Francis Grogan are continuing on their aggressive expansion that will see more micro outlets (retail network)being opened. Conversely, their continued partnership with Shoprite (Zambia,Nigeria and Ghana) will see the company push more of its product to more and more dining tables as the retailer opens more of its shops.

The juggernaut of their strategy is their continued investment in their resources and capabilities. Irwin and Grogan are intent on dominance through the following four areas that will see them build on their resources and capabilities. The first is the commissioning of a new Copperbelt distribution hub which will increase capacity and improve efficiency in the Copperbelt and North Western Province operations (with mining activities on the up, its commonsense to play in this geographical area). The second is by completing expansion of breeding farm and hatchery to increase day-old chick production from 210,000 to 310,000 birds per week. The third is the expansion of broiler processing operations to increase production by 30,000 birds per week and the forth is the commissioning new stock feed plant at Mpongwe to bring additional stock feed capacity on line.

Strengthening of their balance sheet is also part of the grand plan. This will possibly see non-performing assets being disposed of in the interest of securing shareholder value. Our assessment indicates that the 2017 annual report for Zambeef will be a must read as the next 6 months are poised to be very interesting for the company.

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