Growth in cold chain business drives turnaround
During H115, Zambeef Products (LONDON:ZAMB) has made significant progress in improving the profitability of its core cold chain food distribution businesses. Gross profits from the beef, chicken, pork, milk, eggs and fish operations rose by 29% year on year to $21.3m (48% in kwacha terms), resulting in the group generating $0.1m profit before tax (adjusted for unrealised forex) compared with a $3.2m loss in H114. Following the disposal of the non-core Zamanita business which completed earlier this month, we reinstate our estimates and see fair value at 17-30p.
Expansion of core cold chain businesses
Group revenues rose by 7% year-on-year to ZMW844.1m. This was driven by volume growth in pork, chicken and milk products, a recovery in pricing in the Beef division and a greater acreage under cultivation in the Cropping division. In dollar terms, group revenues reduced by 7% year-on-year to $130.7m because of the 21.5% devaluation of the kwacha. Total divisional profit margin (gross profit margin) rose by 5.6pp to 38.3% reflecting margin improvements in the Cropping, Beef and Pork divisions. Excluding unrealised foreign exchange losses of $3.9m, but including realised foreign exchange losses of $3.7m, the pre-tax result shifted from a $3.2m loss to a $0.1m profit. Further growth is expected as the new chicken hatchery and associated stock feed plant come on line in September and additional investment is made in increasing milk production capacity. A substantially larger processing and distribution hub is planned in the Copperbelt, with capacity to support distribution into the DRC as the group transitions into a major food provider for the SADC/COMESA region.
Unlocking value of assets
The performance of the Edible Oils division was adversely affected by movements in the kwacha/US dollar exchange rate as its input costs are largely US dollar denominated. Divisional gross profit fell by 26% year-on-year to $4.6m in H115. The sale of the Zamanita business to Cargill for $26.4m plus assumption of $11.1m debt, reduces exposure to currency and commodity price fluctuations. It also enables management to reduce debt, some of which is dollar denominated.
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