AEL Zambia is a subsidiary company of AEL international and the major holding company is AECL Limited that is listed on the Johannesburg Stock Exchange in South Africa. In Zambia, 25% shareholding is publicly held through the Lusaka Stock Exchange (LuSE) and the other 75% is held by AEL international. The steady increase of copper prices over the last two years has had a positive impact on the production of copper on the Zambian market. This has significantly led to the increase in the intake of explosives which has influenced the revenue performance of AEL Zambia Plc. It is no secret that most mining houses are under constant pressure to lessen their operational costs through their continuous efforts to investigate alternative suppliers and minimize working costs. Therefore, this has led to the increase in both underground and surface mining production in 2018 focusing on development and increased waste stripping respectively.
The Bank of Zambia in February 2018, through its monetary policy committee announced the monetary policy which clearly indicted how they have effectively controlled prices by tightening monetary policy. Overall, this has allowed international investors to regaining confidence in the government’s ability to effectively manage the economy despite high debt levels the country is experiencing. The regained confidence allowed the demand for copper to increase in 2018 with the projected copper price slightly increasing due to improved ongoing energy reforms and the stability of the mining tax regime. Although the copper price increased year on year, AEL Zambia Plc carried on focusing on improving labour productivity and cutting costs while ensuring sustainability and viability of the their business in order to create value for shareholders.
According to AEL Zambia Plc interim results their revenue increased by 36.8% representing ZMW K317,161 million in 2018 compared to ZMW K231,919 million in 2017. This was essentially due to the constant fluctuations in the ZMW/USD exchange rate and good steady volume growth. Moreover, the company in 2018 achieved a net profit after tax of ZMW K41,193 million (2017: ZMW K34,828 million), which indicated an increase of 20% from the prior year. The earnings per share calculated by the profit for the year were ZMW 2.02 in 2018 compared to ZMW 1.68 in 2017. It is encouraging to note that the company’s operating expenses decreased from ZMW 72, 459 in 2017 to ZMW 66, 767 in the year under review hence indicating a saving of roughly 8.5%. However, looking at the detail of AEL Zambia margins it can be seen that across the board the company did not perform as well in 2018 as it did in the previous year. For instance, the margin ratio which measures the proportion of sales being ‘captured by the firm as profit was 14.8% in 2017 as compared to 12.98% in 2018. Moreover, the EBITDA margin, although down by 0.21% compared with the decline in operating profit margin at (-1.82%) indicates that they was a deterioration in performance and the way it impacts the margins suggests that there was a substantial alteration in the non-current asset base of the company.
The AEL security has been performing in tandem with the LuSE All Share index as show in the inserted chart. Most recently, AEL has out performed the market making it one of the most sought after stocks on the local exchange.
In view of the various challenges facing the mining industry the company has carried on to place much emphasis on business growth and sustain margins as can be seen by the increased revenue. For instance, given the company’s multinational nature it has made important investments into Central Africa and produces most of the products it sells in the region through its regional plants through an international strategy adopted. Moreover, AEL has a plant currently under construction in the Democratic Republic of Congo to help facilitate the production of bulk emulsion explosives for underground and surface use. Given Congo’s fast growing mining industry the company has already made extensive investments in a number of strategically placed distribution and storage facilities within Lubumbashi and Katanga respectively. It is significant to not that this has positioned the company strategically to take on any growth opportunities in the Central African region. This future strategic intent will also perhaps provide an opportunity or enhance the company through partnerships and value creation.
AEL Zambia was last week faced with a leadership change at directory level which saw the appointment of Ms Grace Bwanali as Director of the Board. The change in leadership potentially posed a risk that was relatively price sensitive to the stock of AEL Zambia on the stock exchange albeit an upward appreciation. However, it is the responsibility of the investors and the stockbrokers to closely monitor the stock price in order to determine their benefits from various investments made. Conversely, through a general environment analysis by the financial insight team the conditions in our domestic economy remain challenging with lower productivity in the mining industry and continuous fluctuations of the ZMW/USD exchange rate which will definitely have a significant influence on the mid-year through to year-end results for AEL Zambia.