ZAMBEEF 2017 Analysis  
Agriculture, Zambeef Products Plc

In a year that was marred with numerous endogenous and exogenous forces, Zambeef weathered a storm that ultimately came to bear as the company only saw revenues increase by 2.48%. Sentimental performance shows that retail sales revenue increased by 27.3%. The Zambeef Macro and Outlet stores saw 18.2% growth in sales. CCFP volumes increased by 15.8% whilst the stock feed division had a record year with EBITDA increasing by 19.2%. According to the company however, a challenging macroeconomic environment during H1/2017 and a major drop in soft commodity prices significantly impacted the Group’s financial performance.

The impact of cost of sales and operating costs led to a fall in operating profit by 53.8% and profit before interest (PBIT) by 96%. Hence gross, operating and net profit all saw downward movement to 32.8%, 4%, and 0.1% respectively. A closer look at the downward margin projectile indicates that return on sales suffered as it moved from 6.62% in 2016 to 0.13% in 2017. This is further confirmed by the marginal reduction in sweating of assets (Fixed Asset Turnover) from 1.6 to 0.9. Therefore, it is no surprise that return on non-current assets fell by 10% to 3% in the current year.

The company made huge strides in improving its working capital cycle (WCC). They were able to collect money quicker from a cycle of 110 days to 21 days (very healthy performance and indicative of the micro outlet strategy bearing fruit). Interestingly though, the SGA against sales remained stable at 29% indicative that administration costs remaining stable over the two financial years. However, the farm to plate firm saw its debt increase by 25%. But thanks to the increase in equity by 33%, the company reduced its gearing from 25.7 per cent. (2016) to 21.4 per cent. (2017). Sadly though, acid test results indicate liquidity pressures as current assets (less inventory) compared to current liabilities showed an imbalance.

The next AGM for the company will see investors ask the questions of how return on funds invested and equity can be improved. Return on capital employed moved from 8.6% to 3% while return on equity also reduced from 8.22% to 0.13%. The incoming Joint CEO will be hot on his heels to address this as the company now refocuses to get more return on invested funds. With a 47% surge in property plant and equipment, Jacob Mwanza’s board will be demanding more from the increased asset base. However, it also depends on the mix of assets that they have. Signals are clear from the firm, any non-performing assets will be disposed of. Evidence is the disposal of Zampalm.

Strategically, the company has completed a number of capacity expansion and efficiency improvement projects that range from increased outlets, day old chick production increase, improved milk production capacity, and the opening of a new stock feed mill. This is what the new joint CEO Tim Pollock will have to work with in 2018 as he takes over from Dr Carl Irwin who leaves the first firm next year.

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