Covid eats into Zambeef’s profits

The Zambeef Group posted a loss of K102 million during the financial year ended 30th September 2020 against a profit of K18.5 million in the previous period.

It said the year 2020 was characterised by a difficult operating and economic environment due to adverse macro-economic fundamentals and the Covid-19 pandemic.

According to the latest financial statement, Zambeef says the Zambian kwacha weakened by 54% against the US Dollar, resulting in high inflation and reduced customer spending.

The Group also experienced challenges stemming from reduced electricity supply due to continued load shedding, resulting in high diesel generator fuel expenditure and repairs and maintenance costs.

This, coupled with a 49% increase in the electricity tariff at the beginning of the calendar year, significantly increased operational costs and eroded margins.

Revenue and gross profit increased by 24% and 12% due to pricing across most of the divisions despite an increase in input costs.

Finance costs reduced by 15% in USD which can be attributed to the net debt reduction following improved cash generation and Sinazongwe sale proceeds.

The Group ultimately recorded a loss of K102 million during the year compared to a profit of K18.5 million in the previous period.

Despite the strong operating profit performance, profit after tax was impacted by foreign exchange losses, financing costs and the impairment of a deferred tax asset.

The Group says it expects the 2021 financial year to remain challenging, characterised by macro-economic instability.

Despite the challenges noted above, Zambeef posted an operating profit of K10.5 million, a 30.6% growth compared with K161.2 million in 2019.

The Group’s strong underlying performance was driven by growth in the Stockfeed and Cold Chain Food products division.

It says Zambia’s sovereign debt position remains the biggest risk to macroeconomic stability in the short to medium term.

“The COVID-19 pandemic and how it evolves could impact our operations but we anticipate Zambia will acclimate to living with the virus and continue life under the new normal. We believe our business is well positioned to overcome the challenges and continue on the strong performance trajectory owing to our diversified and vertically integrated business operations, great brand portfolio and strong management,” it said.

Commenting on these results, Board Chairman Michael Mundashi said, on the back of a challenging 2019 financial year, 2020 followed suit and proved to be an even tougher year for the Zambeef Group. The 2020 financial year was characterised by difficult economic and market conditions that were exacerbated by the Coronavirus (COVID-19) pandemic.”

“Despite significant growth in the first half of the financial year, macro-economic headwinds – in particular those associated with the Kwacha depreciation – accumulated in the second half and negatively impacted the bottom line financial performance.”

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

“We expect the macro-economic climate to remain challenging in the 2021 financial year, characterised by an increase in volatility. The country’s national debt level remains a threat to macro-economic stability in the short to medium term. We anticipate the COVID-19 pandemic will have minimal impact on our operations in 2021 as Zambia will adjust to living with the virus and resume life under the ‘new normal’.”