Zambeef releases its 2023 Annual Report
December 8th, 2023
CHAIRMAN’S REPORT
Dear Shareholder,
Over the past financial year, we navigated an extremely challenging operational landscape. The primary drivers amidst the ongoing economic headwinds in Zambia were other factors such as the longer-than-planned foreign debt restructuring, subdued copper mining activities, and the devastating impact of climate change affecting crop yields and rainfall patterns.
At the back of these adversities, the 2023 Government GDP growth projection of 4.2% was revised downwards to 2.7%. Consequently, the country saw a tightened monetary policy coupled with food and energy inflation which led to a reduced liquidity situation and limited consumer expenditure. The depreciation of the Kwacha against major foreign currencies led to escalated costs in critical inputs such as fuel and agricultural inputs, further putting pressure on margins.
Despite the tough operating environment, our management team remained focused on our strategy and through a concerted effort, prioritizing revenue maximization, volume growth and cost management, which positioned the group for the commendable results achieved.
The Group’s performance underscores our resilience within an ever-evolving market and highlights the robustness of our vertically integrated business model, the cornerstone in creating enduring value for our esteemed shareholders.
Strategy
The Board maintains its unwavering commitment to realizing the Group’s strategic objectives, even in the face of seasonal market dynamics and economic fluctuations. The five-year strategy focuses on:
- Strengthening our core business through targeted investments and expanding market share.
- Crafting a tailored human capital strategy to meet the organizational needs.
- Enhancing strategic partnerships to bolster our competitive edge and market position.
- Divestiture of non-core assets to allocate resources effectively.
The three to five-year US$100 million expansion program, announced last year, is poised to bolster various value chain capacities within the Group. This initiative is anticipated to have a transformative impact on the Zambian economy, fostering job creation, augmenting tax revenues, and providing essential support to ancillary enterprises, including small-scale farmers and medium-sized businesses. The expansion of the Mpongwe Farm row cropping capacity is advancing, with the inaugural 7,168 metric tonnes of wheat crop harvested in the financial year under review. This milestone is expected to bring about a substantial enhancement in production efficiency and capacity throughout the downstream food value chains. Concurrently, upgrades to the milling and processing facilities are also making significant progress.
During the year, we had the honor of hosting His Excellency Hakainde Hichilema, the President of the Republic of Zambia, who inspected some of our strategic projects in Mpongwe. These include the Cropping expansion, Hatchery expansion, and the new wheat mill. This event also marked the official launch of the 2023 Wheat harvest season.
The Economic Environment
Throughout the fiscal year, the local currency experienced notable volatility against the US Dollar, with fluctuations of up to 35%. This fluctuation was primarily driven by heightened demand for the USD, uncertainties surrounding debt restructuring, and a sustained increase in global interest rates, which affected offshore investor participation in local bond auctions. The ZMW/USD exchange rate commenced at K15.9 and concluded at K21.31, representing a 35% surge. Inflation, a critical economic indicator, concluded the financial year at 12%, as opposed to the previous year’s 9.9%. This was attributed to the depreciation of the currency, along with escalating food and energy prices, despite the persistent implementation of a stringent monetary policy by the central bank.
Noteworthy was the resurgence in copper prices, which peaked at USD 8,230/MT, fueled by China’s copper consumption. However, subdued production levels continued to impede the realization of full value, consequently impacting the economy’s foreign exchange earnings potential. These dynamics underscores the delicate balance between global market forces and domestic production capacities.
Outlook
The enduring stability of the economy hinges on the successful resolution of the government’s debt restructuring negotiations. We foresee a positive trajectory for copper prices, a vital contributor to our foreign exchange earnings, fueled by rising global demand, notably from China and the burgeoning electric vehicle market. The recently unveiled 2024 National budget has instilled optimism, as it signals an increase in government expenditure, anticipated to infuse much-needed liquidity into the economy. We are optimistic, that this will bolster consumer spending and subsequently drive economic growth.
Zambeef is strategically positioned to seize the opportunities ahead and demonstrates adaptability in the face of an otherwise challenging operating environment. This resilience and strategic foresight underscore our commitment to navigating through complexities and thriving in the ever-evolving economic landscape.
16 September 2024 will be the eighth anniversary of British International Investment plc’s (BII) investment in the Company. After this date BII’s conversion rights on their convertible redeemable preference shareholding (“Preference Shares”) will increase materially, from currently one-for-one new ordinary share, to one for 3.0833 (recurring) new ordinary shares. BII is the Company’s largest ordinary shareholder and also holds all Preference Shares. The Company has the right to redeem all or part of the Preference Shares at the redemption price, which would give BII a 12% compounded annual return on their investment, subject to a minimum of USD 0.77 per share (less dividends received). However, the likelihood of such a repayment by the Company in this new financial year, or in the medium term, is currently considered by the Board to be extremely unlikely. Further details of the Preference Shares are provided in note 21 to the financial statements.
Acknowledgment
Since my last report, we welcomed two additional Non-Executive Directors of the Board; Mr. Muyangwa Muyangwa and Dr. John Clifford Rich. Their respective appointments and subsequent announcements were on 21 April and 21 June 2023 respectively. We are confident that their extensive experience (as has been illustrated in their brief Curriculum vitae on page 31) will be instrumental in driving our business forward, in line with our strategic objectives.
I am indebted to my fellow Board members for their devoted leadership throughout the year and I convey my sincere appreciation to our diligent management and staff for yet another year of commendable performance. The steadfast tenacity and fortitude shown in the face of challenges is a testament to the team. I take great pride in our collective achievements thus far and I am eager for the promising opportunities that will shape our future progress. Together, we will continue to build upon this foundation of success.
Michael Mundashi
Chairman
