07 December 2023

Zambeef Products plc

("Zambeef" or the "Group")

Full-year results for the year ended 30 September 2023

Zambeef (AIM: ZAM), the fully integrated cold chain foods and retail business with operations in Zambia, Nigeria and Ghana, today announces its audited results for the year ended 30 September 2023.

Financial Highlights

PERFORMANCE OVERVIEW

The Zambian economy grappled with significant challenges, creating a difficult operational and economic environment. Longer than planned sovereign debt restructuring, subdued mining production of copper, and the impact of climate change; affecting crop yields and rainfall patterns, were primary drivers of this adversity. High energy prices and currency depreciation further impacted and worsened the operating conditions.

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.  

However, despite a tough operating environment, demand for the Group's products grew, bolstered by a customer focused approach to pricing. The Group's management team, through a concerted effort, prioritized both revenue maximisation, volume growth and cost management, thereby, positioning the Group on the path to actualise its strategic goals.

The Group's performance underscores its resilience within an ever-evolving market and highlights the robustness of the vertically integrated business model, the cornerstone in creating enduring value for its shareholders.

KEY FINANCIAL HIGHLIGHTS

The Group achieved a revenue of ZMW 6.0 billion (USD 331.5 million), along with a gross profit of ZMW 1.8 billion (USD 101.0 million). This represents a year-on-year increase of 12.1% and 12.9% in kwacha terms, and 5.6% and 6.3% in US dollar terms, respectively. The Group's performance was achieved on the back of strong volumes performance in Stock feed and Cold Chain Food Products.

Finance costs increased by 31% which can be attributed to the extended utilisation of the overdraft and term loan facilities to supplement business growth and financing escalating working capital requirements.

Additionally, the Group delivered an operating profit of ZMW 361.4 million (USD 19.8 million), a significant increase of 108.1% in kwacha terms (96.0% in US dollar terms) compared to the prior year's ZMW 173.7 million (USD 10.1 million). Although prior year was impacted by a one off impairment cost of ZMW 141.8 million, this growth underscores the effectiveness of the Group's commercial strategy and the successful execution of the key cropping project.

The Group ultimately recorded a profit of ZMW120.2 million (USD 6.6 million) for 2023 compared to ZMW31.6 million (USD 1.8 million) of value generated in the previous corresponding period.

The bottom line profitability was mainly driven by increased volumes and margins in the Stock feed and Cold Chain Food products segments.

Management continued to optimize top-line growth through effective revenue management while upholding stringent cost control measures, positioning the Group on the trajectory to actualize its short to medium-term strategy.

The Group remains dedicated to fortifying its brand equity and providing customers with high quality products. With its diversified and vertically integrated business model, robust brands, and effective management, the Group is well-equipped to seize future opportunities and navigate potential threats.

Commenting on these results, Chairman Michael Mundashi said:

"Despite a tough operating environment, demand for our products grew, bolstered by a customer focused approach to pricing. Our management team, through a concerted effort, prioritized both revenue maximisation, volume growth and cost management, thereby, positioning the Group on the path to actualise its strategic goals."

"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."

"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, fuelled by a rising global demand, notably from China and the burgeoning electric vehicle market. The recently unveiled 2024 budget has instilled optimism, as it signals an increase in government expenditure, anticipated to infuse much-needed liquidity into the economy. This, in turn, is expected to bolster consumer spending and subsequently drive economic growth."

"Zambeef is strategically positioned to seize the forthcoming opportunities 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."

Copies of Zambeef's Annual Report and Accounts for the year ended 30 September 2023 and Notice of AGM will shortly be sent to shareholders and made available on the Group's website and a further announcement will be made at this time.

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 269 retail outlets throughout Zambia and West Africa.

The Company is one of the largest suppliers of beef in Zambia. Five beef abattoirs and five 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 9.4m broilers and 25 million-day-old chicks a year. It is one of the largest pig abattoirs and pork processing plants in Zambia, with a capacity to slaughter 102,000 pigs a year, while it's 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 7,265 hectares of row crops under irrigation, which are planted twice a year, and a further 7,924 hectares of rainfed/dry-land crops available for planting each year.

CHAIRMAN'S REVIEW

Dear Shareholder,

Over the past financial year, we navigated an extremely challenging operational landscape. The primary drivers midst the ongoing economic headwinds in Zambia were other factors such as the longer-than-planned foreign debt restructuring, subdued copper mining activities, and the 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, prioritising revenue maximisation, 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 honour 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, fuelled 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 underscore 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, fuelled 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 Preference 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.

Acknowledgement

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 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

Chief Executive Officer's Report

Overview

During the financial year ending on September 30, 2023, Zambeef exhibited agility resulting in strong financial performance. Management continued to optimise top-line growth through effective revenue management while upholding stringent cost control measures, positioning the Group on the trajectory to actualize its short to medium-term strategy.

Our achievements stand as a testament to the talent within our organization and the enduring partnerships we've established with customers, suppliers, and the communities in which we operate. Reflecting on the past year, it is evident that our unwavering dedication to commercial objectives, along with our commitment to operational excellence and cost optimization, has not only spurred us forward but also solidified our position in some of the sectors in which we operate. This report offers a comprehensive overview of our performance, spotlighting significant milestones, financial performance, and ongoing initiatives aimed at sustaining growth and creating long-term value.

Financial Performance

Despite a challenging trading environment marked by constrained consumer spending and a tight monetary policy, the Group achieved strong results for the year ending September 30, 2023. Escalating costs of vital inputs and commodities, including fuel, electricity, agricultural supplies, and grain, led to increased production costs for our livestock and cropping divisions. Nevertheless, the Group demonstrated volume growth in most divisions, capitalizing on the momentum from the latter half of 2022. This was facilitated by a meticulous approach to revenue management and effective sales and operational execution.

The Group achieved a revenue of ZMW 6.0 billion (USD 331.5 million), along with a gross profit of ZMW 1.8 billion (USD 101.1 million). This represents a year-on-year increase of 12.1% and 12.9% in kwacha terms, and 5.6% and 6.3% in US dollar terms, respectively.

Additionally, the Group delivered an operating profit of ZMW 361.4 million (USD 19.8 million), a significant increase of 108.1% in kwacha terms (96.0% in US dollar terms) compared to the prior year's ZMW 173.7 million (USD 10.1 million). Although the prior year was impacted by a one-off impairment cost of ZMW 141.8 million, this growth underscores the effectiveness of our commercial strategy and the successful execution of the cropping expansion project.

The Group remains dedicated to fortifying its brand equity and providing customers with high-quality products. With our diversified and vertically integrated business model, robust brands, and effective management, we are well-equipped to seize future opportunities and navigate potential threats.

Strategic Focus

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 to increase cash generation and profitability and therefore continue to deliver shareholder value. I am pleased to report that our $100 million medium-term expansion plans are proceeding as scheduled. We have maintained our dedication to enhancing capacity and efficiency in Cropping, Milling, Stockfeed, Dairy, and Poultry.

Our strategic focus in optimising costs and rationalising the Group's operations continued throughout the financial year. Management's proposal to restructure the Group was approved and an announcement was made in September 2023. The Company is expected to benefit from the restructuring as it will eliminate unnecessary complexities and duplications of its business processes across the six different entities, which have the same key decision-makers, processes, ownership and senior Executive team. I am particularly gratified that all the Executive positions have been filled, positioning the Group for navigating forthcoming business growth with a leadership team with the necessary ability to drive the Group's future success.

Outlook

Looking ahead, our strong brand presence will continue to be a cornerstone in maintaining customer loyalty. Additionally, our vertically integrated business model places us in a favourable position, ensuring a reliable supply chain and a market for our products. We anticipate a stabilisation in the economic environment once the process of debt restructuring concludes and there is an upswing in Copper production. With these factors in mind, the Group is poised to leverage the opportunities arising from a positive economic outlook, strategically investing for the future in anticipation of an upturn in consumer spending.

Our ongoing commitment to consolidating our balance sheet through the disposal of low returning assets, optimising existing assets and the expansion of capacity remains a central focus. These measures are geared towards enhancing shareholder value, a goal we remain dedicated to achieving. By fortifying our financial foundation and strengthening our operational capabilities, we are poised for sustained growth and prosperity in the years ahead.

Divisional Performance

Table 1 (ZMW) and Table 2 (USD) below provide a summary of the consolidated performance of the key business divisions reported at an operating profit level.

Table 1: Divisional financial summary in ZMW'000

Table 2: Divisional financial summary in USD'000

Retailing & Cold Chain Food Products

The year was marked with good sales volumes across all protein categories, despite operating within a competitive and financially constrained environment. Our ability to retain and increase volumes was driven by meticulous sales execution and price optimization, all of which had a direct impact on the overall revenue growth.

However, it's worth noting that despite achieving double-digit volume growth, the beef division reported a decline in gross profit, primarily attributed to expenses resulting from the outbreak of Contagious Bovine Pleuropneumonia (CBPP), a disease affecting cattle, whose effect continued from the previous financial year into the current one. In addition, rising input costs, specifically the high price of buying animals and increased feeding costs, put pressure on profitability.

In the first half of the year, there was a sluggish demand for chicken, which picked up in the latter half. This was largely due to other protein categories becoming relatively more expensive. This shift in consumer preference helped bolster sales of both feed and Day-old chicks, contributing to the division's overall performance and demonstrating the dynamic consumer behaviour and the importance of adapting to market trends.

The Dairy segment's revenue realisation was on the back of strong volume growth and is well positioned to capitalise on further growth opportunities in the coming periods.

Despite the challenges, the division experienced a moderate growth of 1.4% growth in gross profit in USD terms and 7.7% in Kwacha terms over the prior year. This growth can be attributed to effective pricing strategies, operational efficiency improvements, and a favourable product mix.

The Retailing and Cold Chain Food Production segment is well poised to build upon these achievements and continue its trajectory of growth and profitability in the upcoming fiscal year. Through strategic initiatives and a customer-centric approach, we aim to further strengthen our position in the market.

Cropping and Milling

The Cropping segment delivered a notable revenue performance, achieving a growth of 17.7% in Kwacha (10.9% in USD) compared to the previous year. However, operating profit ended with a significant reduction, primarily attributed to lower prices and yields in the summer soya bean crop which was further compounded by the escalating costs of critical inputs such as fertilizer and fuel.

In the Stock Feed segment, there was an increase in demand during the latter half of the year which translated into revenue and volume maximization, ultimately contributing to profitability. The positive performance underscores our capability to adapt to changing market dynamics and meet customer needs effectively.

The Flour segment experienced double-digit growth in volumes attributed to the implementation of good sales strategies and the introduction of new product lines. This performance highlights our commitment to innovation and our ability to execute sales initiatives effectively, thereby driving growth in this segment.

Acknowledgements

I would like to extend my gratitude to our Board of Directors for their guidance and support. I am also indebted, to all our dedicated staff and partners, for their invaluable contributions to the ongoing success of the Group.

I eagerly anticipate what we will achieve in the coming year as we continue to implement and execute our growth strategy.

Faith Mukutu

Chief Executive Officer

6 December 2023

Zambeef Products Plc and its Subsidiaries

Statement of profit or loss and other comprehensive income