Zambeef: When Investors Call the Shots!
Agriculture, Strategy, Zambeef Products Plc

When UK’s development finance house, CDC Group, made the acquisition of 17.5% of Zambeef last year for $65m not only was it a positive statement about the reason why Zambia had become an idea investment destination but was a testament to the value creation potential they saw in the farm to shop company. With operations across Zambia, Nigeria and Ghana, the agricultural juggernaut has leverage off its economies of scale, control of the “agric” value chain and its partnership with Shoprite. The CDC investment was timely as the equity capital, as stated by Francis Grogan (Joint CEO),  “would go into funding additional retail stores and Shoprite butcheries, develop its cold-chain warehousing, as well as grow its dairy farm and processing operations”. In addition, he stated that “the capital would also be directed at expanding its animal feed milling business (Novatek), which Zambeef found a strong export market in.

Therefore, a statement from the company issued to LuSE on 15 November 2017 regarding Leadership succession came as a surprise. According to the statement, Dr. Carl Irwin, Joint CEO would be retiring on 31 March 2018 for personal reasons. In addition, Tim Pollock would step in and join Francis Grogan from 31 March 2018 as joint CEO. However, effective 1st January 2018 he will leave CDC and join Zambeef as Group Managing Director for arguably the shortest predetermined stint before he ascends to the dual CEO role.

Dr Carl Irwin. Photo from Zambeef website

According to the statement from their board Chairman, Jacob Mwanza, “I would like to take this opportunity to thank on behalf of shareholders, employees and the Board, Carl Irwin for his outstanding contribution to Zambeef over the past 23 years. He, along with Francis Grogan, co-founded the business and it has been through their vision, entrepreneurial drive and leadership that Zambeef has grown to become a market-leading and respected Zambian and Southern African business.” Carl has given is life and soul to Zambeef. No doubt, his management style is etched into the DNA of Zambeef. So it is interesting that Tim Pollock takes over from him barely a year after the CDC investment.

Tim is not without passion for the company. Listening to his statement when he was Investment Director for food and agriculture at CDC after the 17.5% deal where he stated that “CDC’s focus is to invest in businesses that will grow and deliver real benefits to people.  As a large local employer Zambeef already provides 6,200 jobs, 98 per cent of which are held by Zambians.  Our investment will help support Zambeef’s expansion plans and bring even more quality jobs.Therefore, FiZ can conclude that he, although heir apparent now, has been keeping a close watch over the CDC investment (like all equity investors motivated by Return on Equity). Real benefits to people, no doubt, the people of CDC among others. The statement in itself resonates with the 2016 annual report post the CDC deal where the dividend policy would be revised hence wetting the appetite of investors who had been patiently waiting for a dividend.

Since the entry of CDC, there have been other notable changes at the farm to shop firm. Zampalm, undoubtedly Carl’s passion project that saw the company invest north of $20m into the palm oil venture that yielded no revenue was mid this year sold to IDC. The proceeds of the sale would be used to strengthen the company’s balance sheet by paying down some of the debt they are current laden with. Furthermore, the board chairman indicates that “the company’s focus will be on improving operating margins and return of capital employed from existing assets”.  Performance of ROCE is one of the signals that investors and shareholders (such as CDC) of a company look at to know whether they are getting a return on investment on invested funds.

CDC’s agric maestro Tim Pollock as new Joint CEO in 2018. Photo from Zambeef website

The Board is conscious of the significant level of investment that has been made in the Zambeef business over the past two years, and of the need to improve shareholder returns. Therefore, Chairman Jacob indicates that the company is “committed to a number of strategic priorities and objectives, including the expansion of their retail network and footprint across Zambia, the expansion of production capacity across our CCFP facilities, the construction of a second Stock Feed plant and the disposal of non-core businesses.”  All these business units are areas where they possess competitive advantage. Therefore, it is only fitting that they consolidate their position and dominance by investing in property plant and equipment (PPE) as well make improvements in their capabilities.

Conversely, with the substantial investment made into businesses over the last two years, the question that investors should be asking is whether Return on Capital employed will be the core focus going forward at the expense of continued pursuit of scale economies that has seen Zambeef enter new markets and product lines through acquisitions. Will the new MD focus more on sweating assets due to the debt burden? FiZ looks forward to the next Annual General Meeting where we will ask the question.

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