• The half year period ended 31 March 2023 was characterised by a difficult trading environment due to constricted consumer spending amidst a tight monetary policy. This was further exacerbated by a rise in the cost of key inputs and commodities, particularly fuel, agriculture inputs and grain which in turn increased production costs to our livestock and cropping divisions.
• The local currency experienced a steady depreciation against the US Dollar with a sharp depreciation in March 2023.The key drivers for the depreciation were the increased demand for the USD, uncertainty over the debt restructuring and a sustained rise in global interest rates affecting participation of offshore investors in local bond auctions. The ZMW/USD exchange rate opened at K15.75 and ended at K21.31 (35% increase) which resulted in exchange losses of ZMW58 million in the first half of the year.
• Inflation saw a significant reduction in the period closing at 9.6% compared to 13.1% in the previous year.
• Despite the challenges noted above, Zambeef products remained top of mind of consumers and demand remained relatively strong with most product categories posting volume growth. Moderate pricing of our products and escalation in input costs put pressure on margins.
• The long-term stability of the economy is dependent on the successful negotiation of the debt restructuring by the government. We anticipate the copper price, which is a major foreign exchange earner for the country, to stabilise at current levels owing to a growing increase in global demand particularly from China. The newly introduced legislation of partial withdrawal of retirement benefits from the National Pension Scheme Authority Pre-retirement benefits law is expected to inject much needed liquidity in the economy which will drive economic growth.
• Zambeef remains well positioned to capitalise on the opportunities ahead and remains agile in the face of an otherwise difficult operating environment.
Key Financial Highlights
• Our revenue was ZMW2.78 billion and we achieved a gross profit of ZMW874.9 million, respectively 8.4% and 2.4% above prior year respectively.
• The Group delivered a half year operating profit of ZMW 99.6 million, representing a decline of 56.8% compared to ZMW 230.4 million in prior year. Performance against prior year was impacted by exceptionally higher price of grain in prior year from which the Cropping division benefited.
• The Group’s profitability was further impacted by escalation in cost of sales against prior year that could not be fully passed on to the consumer through price. Compared to prior year, the cost of maize purchased increased by ZMW80 million, the cost of soya by ZMW25 million and the company saw a sharp increase in agriculture inputs, by approximately ZMW67 million.
• Arising from the Groups USD100m expansion strategy, net free cashflows were impacted by the capital expenditure spend of ZMW 566 million and working capital funding increase of ZMW 8.8 million primarily due to increased input costs.
• Finance costs reduced by 7.4% despite an elevated net debt position owing to a reduction in exposure to foreign denominated debt. The actions previously taken by the group allowed for ease of forecasting as well as reduction of currency risk.
• Our strategic focus remains to optimise our existing asset utilisation and maximise returns. We remain committed to our strategy of focussing on our core businesses, in which we strive to be the best in class. The continued investment in key strategic assets and divestiture of non-core assets will enable us increase cash generation and profitability and therefore continue to deliver shareholder value.