• Zambeef revenue up 8.4% but profit down 56.8% due to the weak kwacha
• Debt relief and copper rebound could aid Zambia economy
• Global food price rises may boost exports but shrink margins

Sandton- Zambeef Products, Zambia’s largest agro-industrial firm, reported mixed results for the half year ended March 2023 as a result of difficult operating environment characterised by currency volatility and rising inflation weighed on performance. 

Revenue for the period rose 8.4% to ZMW2.78 billion ($157 million) compared to the same period last year, driven by volume growth across most product categories, the company said.

However, higher input costs and a weaker kwacha resulted in a 56.8% decline in operating profit to ZMW99.6 million ($5.63 million). The exchange rate moved from ZMW15.75: $1 to ZMW21.31: $1 over the six months. 

The macroeconomic environment remains challenging, but Zambeef is confident in its ability to continue gaining market share, according to the update. “Zambeef products remained top of mind for consumers and demand remained relatively strong with most product categories posting volume growth,” Zambeef said.  

The company has invested more than ZMW566 million ($31.4 million) over the past half year in line with its $100 million expansion strategy. This resulted in higher finance costs and constrained free cash flows over the period. However, Zambeef’s debt levels have declined on lower exposure to foreign currency-denominated loans.  

“The long-term stability of the economy is dependent on the successful negotiation of the debt restructuring by the government,” the company said. Zambia defaulted on its debt in 2020 and reached a deal to restructure bilateral loans of $6.3 billion last week. Bondholders expect an agreement on Zambia’s Eurobonds in the coming weeks. 

A successful debt restructuring and rebound in copper prices could improve Zambia’s economic outlook, said Equity Axis’s Chief Analyst Respect Gwenzi. Copper is Zambia’s main export, accounting for more than 70% of export earnings. 

“Debt relief will give Zambia breathing space and ease its debt service burden. We could see improved business confidence, which may translate into firm private sector spending,” Gwenzi said. 

However, he expects inflation to remain elevated in the coming months. Higher prices of grain, fuel and agricultural inputs drove up costs for Zambeef over the past six months. “The pass-through effect of the currency depreciation will continue to reflect in rising prices going forward,” Gwenzi said. 

Zambeef plans to focus on optimizing its existing operations and assets to improve cash generation and profitability. The company will also continue divesting non-core assets. It aims to strengthen its position as a leading agro-industrial firm in Zambia and broader Southern Africa.  

Outlook

The outlook for Zambeef looks sustainable but challenging given global economic headwinds. While higher global food prices could boost Zambeef’s export revenues, it may also drive-up domestic input costs and shrink profit margins. Investors will likely remain cautious until Zambia’s debt restructuring is complete and copper prices show sustained recovery. However, Zambeef’s dominant position in Zambia’s agro-industry and efforts to cut costs through asset optimization place the company in a good position to benefit from long-term economic growth.

The company’s share price closed at 2.59K on Friday, 29 June 2023 as investors digested the mixed results.

Gwenzi said Zambeef’s share price has declined on macroeconomic uncertainty and rising production costs, but value may emerge at current levels. “Zambeef is a solid company with huge potential for unlocking value over the medium to long term.”

About Zambeef Products PLC

Zambeef Products plc is the largest integrated cold chain food products and agribusiness company in Zambia and one of the largest in the region, involved in the primary production, processing, distribution and retailing of beef, chicken, pork, milk, dairy products, fish, flour and stockfeed, throughout Zambia and the surrounding region, as well as Nigeria and Ghana.

It has 236 retail outlets throughout Zambia and West Africa. The Company is one of the largest suppliers of beef in Zambia. Five beef abattoirs and three feedlots are located throughout Zambia, with a capacity to slaughter 230,000 cattle a year. It is also one of the largest chicken producers in Zambia, with a capacity of 8.8m broilers and 22.4 million-day-old chicks a year. It has the largest pig abattoir and pork processing plants in Zambia, with a capacity to slaughter 75,000 pigs a year, while its dairy has a capacity of 120,000 litres per day.

The Group is also one of the largest cereal row cropping operations in Zambia, with approximately 7,787 hectares of row crops under irrigation, which are planted twice a year, and a further 8,694 hectares of rainfed/dry-land crops available for planting each year.

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