Financial Performance Review
Total revenue for the year ended 31 August 2020 was K3.334 billion, 13% above the prior year comparative, largely driven by 15% growth in domestic sales volume and a higher realisation of export sales due to a 51% depreciation of the kwacha against the US dollar over the year. This was however partially offset by a 27 % reduction in export sales volumes.
Operating profit for the year was K775 million compared to K606 million operating profit in the previous year. This profit increase was mainly driven by higher net revenue and sustained production levels. After tax profits however declined from K269 million to K235 million due to higher effective tax rate resulting from a change in the business profile.
Escalation of costs remains a major challenge in the business with increases during the period of electricity tariffs (56%) and fuel prices, compounded by higher than expected inflation at 15.5%. The depreciation of the Kwacha also adversely affected direct costs in the factory and sugarcane operations which have significant currency exposure. Extensive periods of electricity load shedding hindered the smooth operation of the production facilities and also adversely affected the ability to fully irrigate the crop as required.
The effects of the COVID 19 pandemic have further exacerbated an already challenging business operating environment. The company faced significant disruptions to the supply chain particularly relating to spares, chemicals and other imported inputs. Significant costs were also incurred on the estate as well as the surrounding community to mitigate the potential effects of an infection outbreak. However proactive cost control measures and business improvement projects have helped to ensure efficient operations, increased productivity and cost containment while still focusing on customer service.
Finance costs have increased in the financial year to K327 million from K300 million in the prior year due to an increase in the loan amounts at the end of the previous financial year. A reduction in finance costs is forecast in the next financial year due to a reduction in the long-term debt settled in the current financial period. Part of the repayment was the full settlement of the borrowing that related to the Product Alignment and Refinery (PAAR) project.
During the period the business was reclassified as both a manufacturing and agricultural entity. The tax base consequently changed to a higher effective tax rate with a resultant increase in the tax charge by K108 million compared to the position in August 2019 and a prior year additional charge of K46 million.
Headline earnings for the year ended August 2020 decreased to K235 million from K263 million reported Net cash outflows before financing activities 237 682 121 578
Market Performance Review
The domestic market performance has continued on a positive trajectory as a result of continued optimisation of marketing strategies and the benefit of reduced illicit sugar flows into the market during lockdown. The market performed 15% above the actual volumes for the previous year ended August 2019.
Regional market sales volumes have reduced due to the impact of surplus world sugar supply resulting in significant volumes of world market sugar finding its way into the region affecting demand and putting pressure on margins in the 1st half of the period. In the 2nd half of the period volumes were impacted by COVID-19 related travel restrictions that impacted on the certification and permits necessary for food exports.
Directorate
Mr. Raphael Chipoma was appointed to the Board as Director on 1 December 2019, replacing Ms Faith Mukutu, who resigned the position on 31 August 2019.
Mr. Marc Pousson was appointed to the position of Executive Director on 1 June 2020 replacing Mr. Graham M Rolfe, who resigned the position on 31 May 2020.
Mr Doug Kasambala and Mrs Roseta Mwape Chabala were also appointed to the Board as NonExecutive Directors effective on 1 February 2020.
Mr Craig Taylor resigned from the Board as a Non-Executive Director, effective 31 January 2020.
Ms Mwansa Mutimushi resigned as Company Secretary effective 30th September 2020.
Prospects
Notwithstanding the continuity of operations as an essential goods producer, the impacts of COVID-19 are expected to persist well into the next financial year with potential adverse effects on the Company’s operations. The uncertainty around COVID-19 is further compounded by a shrinking Zambian economy in the current year, in part due to the effects of the pandemic. The sharp depreciation of the Kwacha and growing inflation increase the risk of cost escalation and the consequent pressure on operating profit.
Tightening liquidity from both customers and suppliers will continue to put pressure on the Company’s working capital
Sugar production for the April 2020 – March 2021 season is expected to be slightly lower than the April 2019 – March 2020 season as per the current seasonal estimations.
Domestic sales are forecast to remain at similar levels with a possibility of a slight drop as consumers’ disposable income declines.
Sales into regional export markets are expected to remain at similar levels as the actual amounts sold in the current period due to product availability constraints, however the regional market is currently benefiting from the depreciation of the kwacha.
Dividend
The Board has proposed dividend of 24 ngwee per share to be considered for approval by shareholders at the Annual General Meeting scheduled for 26 November 2020.