ZCCM – IH – Skiing with hands full
Mining, ZCCM-Investment Holdings Plc

We have often wondered what it is like to ski in the French Alps. Although we could not ski to save our lives, mining commodities have offered varying fortunes (mostly downhill)for players in this game globally. In order for extant players such as Rio Tinto to stay on the slopes for example, divestures have been one of the chosen strategies to protect the balance sheet (get rid of non-performing assets or be damned). Locally however, ZCCM IH had its hands full in 2016. If it wasn’t opening a 150 MW coal power plant in Maamba it was busy in court with Pascal et al. and the FQM family while in between it was buying investment property worth USD 8 million in Trinity Park.

Sadly, year on year earnings for the group continued to nosedive for the 2015 to 2016 period and remained in negative territory. Global commodity prices took a haircut and the agony of the tumbling copper prices hurt the group’s portfolio of mining companies which saw a further reduction in revenue of 17.9%. Operating cash flows reduced by 75.1% indicative of reduced activity in operations. We were unable to perform in-depth diagnosis because only the abridged audited financials for year ended 31 march 2016 were available to us off the LuSE website. However, we calculated cost of sales rising by 37.8% indicative of pressure from a number of Porters 5 forces. The annual report will allow us to decode which forces had dominance.

An assessment of working capital cycle showed that the group was experiencing latency in collection of revenue owing to increase in receivable days. Conversely, there was a reduction in inventory during the period under review. Gearing remained flat at 4% as the group’s appetite for debt was diminished.However, total liabilities were up by 29.7%. The group’s decision to play big brother to its subsidiary Ndola Lime Company (NLC) by conversion of a shareholder loan to equity for the purpose of strengthening the balance sheet of NLC saw movement from the parent company’s receivables to equity.

Assessing its resources and capabilities indicated that its total asset position was improved by 15.2%. However, there are signals of a surge in PPE of 32.8%. According to their company secretary Chabby Chabala in the authorized SENS announcement of 13 June 2017, this is largely on account of translation differences on equity accounted investees. What this means is that the equity method is the accounting technique used by company to assess the profits earned by their investments in other companies. In this case, ZCCM IH reports the income earned on the investment on its income statement, and the reported value is based on the firm’s share of the company assets. Therefore, it is incumbent on the management team to ensure they extract maximum value from these investments. There statement is indicative of this desire as their plan will be to continue to explore diversification. They intend to introduce initiatives to achieve efficiency at NLC. They are also looking at the completion of the Maamba Thermal Plant.Furthermore, investments in property and agriculture are activities expected to positively impact the Group in the medium to long term according to their company secretary.

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