Annual Report

November 30th, 2021

CHAIRMAN’S REPORT

Dear Shareholder,
It is my pleasure to present to you the Chairman’s Report with respect to the financial year ended September 30, 2021.

The unprecedented effects of the global pandemic disrupted all aspects of life around the world and our business has not been exempted. This invariably meant difficult trading conditions, balancing between safeguarding the welfare of our people and customers against ensuring the business continuing to run efficiently and effectively whilst feeding the nation. The 2021 financial year was characterised by supply challenges and rising input costs underpinned by a tough macro environment. In comparison to the previous period, the macroeconomic fundamentals remained relatively stable during the financial year in the context of events in the second half of 2020. The local currency depreciated at a much slower rate in the first half and experienced a steep appreciation in the second half of the financial year. Increased consumer spending, stemming from government dismantling of domestic debt and the central bank’s Covid-19 economic stimulus package resulted in increased demand for our products.

The good rainfall season experienced during the summer increased the supply of hydroelectric power to the nation, which helped alleviate the load shedding situation, thus positively impacting on the financial performance. The strength, resilience and agility of our business can be seen through the financial performance.

The Group generated an operating profit, including profit from asset held for sale, of ZMW299.3 million (USD14.1 million) compared to ZMW212.1 million (USD13.1 million) in the prior financial year. The operating profit excluding profit from asset held for sale operations was ZMW267.3million (USD12.7 million) compared to ZMW210.5 million (USD13.1 million) achieved in the previous financial year. Profit before tax was ZMW203.9 million (USD9.7 million) compared to a Loss before tax of ZMW22.7 million (USD1.4 million) achieved in the prior financial year. The Group’s performance in the face of headwinds illustrates the strengths of our vertically integrated business model, the strength of our brands and a good management team.

The Board believes the key to sustainable growth, while mitigating the effects of dynamic economic and climate cycles, lies in remaining committed to its strategic priorities. As such, the focus remains on the core businesses that generate sustainable and strong cashflows, while reducing our debt to release cash for reinvestment in higher returning projects.

The Economic Environment

The Zambian economy came under significant pressure in the first half of the financial year, stemming from the national debt burden, which was exacerbated by the impact of the coronavirus pandemic while the second half saw the country hold successful general elections which resulted in positive market sentiments and a positive economic outlook. The Zambian kwacha appreciated steeply in the last quarter, supported by foreign participation in the bond market and a higher copper price on the international commodity markets.

Despite recovery in the global economy, the Zambian economic recovery shall remain gradual, given the high debt burden, high inflation and a volatile currency.

Inflationary pressures, particularly food inflation, had resulted in a significant drop in our customers’ disposable income and has continued to put pressure on the consumers’ share of wallet going towards food spend. Inflation for the financial year under review closed at 22.1% compared to 15.7% for the previous financial year.

Divisional Performance Review

Retail and Cold Chain Food Products

The Group continued to focus on revenue optimisation, asset utilisation and cost control as pillars to drive profitability in the combined retail and cold chain food products divisions. Revenue grew by 30% with an operating profit of ZMW216.4 Million.

Supply challenges experienced by the division and rising global food prices precipitated rising input costs. As a result, the division saw volumes decline across most protein categories.

The Poultry business remained a major source of profitable growth for the group. Management implemented measures to improve production efficiencies, which contributed to improved gross profit margins. Increased demand for eggs, broilers and therefore day-old chicks allowed for revenue growth and improved profitability.

Stockfeed

Volumes were flat compared to prior year during the period owing to slow growth and declines on major product lines. The shortage of day-old chicks on the market limited customers buying of broiler feed while an export ban imposed by government reduced export sales. The increase in the world prices of GMO-free soya beans and imported materials negatively impacted cost of sales and therefore profitability.

Cropping

Zambia had a good summer rainfall season and as a result, yields for the summer crop were in line with expectations, with winter crop yields exceeding forecasts supported by better farming practices and reduced load-shedding. The country delivered a bumper maize harvest, which helped to stabilise maize prices.

Outlook

We anticipate macro-economic stability to continue over the medium term supported by improved investor sentiment, high copper prices and improved electricity supply. The kwacha is expected to maintain relative stability with minor volatility towards the end of the 2021 calendar year. The copper price, which is a major foreign exchange earner for the country, is expected to continue holding as the global economy continues to recover from the Covid-19 related shocks. The inflation rate is expected to reduce following an expected summer crop bumper harvest from a forecasted La Niña weather pattern, the appreciation of the kwacha and restoration of global supply stability. The Covid-19 pandemic remains a threat to the country as the country’s vaccination program continues to move at a slow pace.

The group remains committed to delivering value to shareholders and is well positioned to navigate the turmoil while capitalising on opportunities.

Strategy

During the year, the board embarked on a five-year strategy refresh process for the Group. Although it is difficult to look ahead with any certainty, I am happy to report that we now have a strategy in place that positions the Group to tackle the challenges ahead while capitalising on the opportunities presented and therefore maximise shareholder value. The strategy provides clarity in terms of where we want to go and what we want to do, having set realistic targets and mapped out a journey. The five year strategy will be underpinned by the following pillars:

  • Focus and strengthen our core business by investing in production capacity and grow market share
  • Divestiture of non-core assets to free up resources
  • Develop a human capital strategy that aligns with business objectives
  • Strengthen our strategic partnerships

Acknowledgement

On behalf of the Company and the board of directors, I would like to express my sincere gratitude to Dr Lawrence Sikutwa, Margare Mudenda, John Rabb, David Osborne and Professor Enala Mwase who resigned from the board in the first half of the year. Their dedication and contributions to the success of the business over the years will be greatly missed.

During the year, we welcomed Katebe Monica Musonda, Pearson Gowero and Roman Frenkel to our board of directors. Their industry experience and rich diverse backgrounds will be key in driving the business into the next phase of the Groups evolution as a regional food provider.

At senior management level, we said farewell to Danny Museteka who had been with the company for 22 years, his last role being company secretary. Danny played a vital role in helping to transform the company over the years, and I would like to thank him for his outstanding contribution. We welcomed Mwansa Mutimushi who joined as group head of Legal & Company Secretary and Nyangu Kayamba who also joined as Human Resources executive. I believe it is a good addition to the dedicated team and that we have a good balance of skills and professionalism.

I also thank my fellow board members for steering the Group through this challenging period. To our management and staff, I express my gratitude to them for another solid performance, dedicated efforts and resilience in the face of challenges. I am proud of our achievements to date, and I am excited by the potential opportunities upon which we will build our future progress.

Michael Mundashi SC
Chairman