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Zambeef Products PLC 2012 annual report

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Zambeef Products PLC annual report for the year ended 30 September 2012

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Zambeef Products PLC 2012 annual report

  1. 1. h ng t e Na di tioFee nA year ofexpansion Zambeef Products PLC Annual report 2012
  2. 2. www.zambeefplc.comWelcome Welcome to the 2012 edition of Zambeef Products PLC’s annual report and financial statements. Following on from last year’s achievements, which included the largest acquisition in our history and a dual listing on the AIM Market of the London Stock Exchange, we have undergone a year of expansion and integration. We continue to grow our business and we strive to provide value to all our stakeholders. We take this opportunity to present you with all the information required to analyse our performance, the milestones we have achieved during this financial year, and the continued strides we take to ensure that we enhance our reputation of ensuring that we are the leading food basket provider in Zambia. Dr. Jacob Mwanza Francis Grogan Chairman Chief Executive Officer Company overview 41 Approval of annual financial 02 Highlights statements and annual 04 Zambeef at a glance compliance certificate 06 Chairman’s statement 10 Zambia – an attractive Financial statements investment destination 44 eport of the Independent Auditors R 11 Zambeef – an attractive 46 Consolidated Statement of investment opportunity Comprehensive Income 47 Consolidated Statement of Business review Movements in Equity 14 Chief Executive’s review 49 Company Statement of Movements 20 Finance report in Equity 22 Ratios and statistics 51 Consolidated Statement of 23 Key performance indicators Financial Position 24 Environment and social 52 Company Statement of responsibility Financial Position 53 Consolidated Cash Flow Statement Corporate governance 54 Company Cash Flow Statement 30 Board of Directors 55 Notes to the Financial Statements 32 Report of the Directors 104 otice of AGM and Agenda N 36 Corporate governance statement 105 Proxy Form 40 Statement of Director’s 107 ppendix 1 – Rules of the Zambeef A responsibilities Products PLC 2012 Long Term Incentive Plan
  3. 3. Company overview 01 Business review Corporate governance Financial statementsWho we are Where we are goingZambeef Products PLC (“Zambeef”, Our vision is to be the most accessiblethe “Company”, or, together with its and affordable quality protein providersubsidiaries the “Group”) is one of in the region.the largest integrated agri‑businessesin Zambia. We wish to increase the efficiency and capacity of our primary productionThe Group is principally involved in the facilities and we continue to pursue aproduction, processing, distribution and vertically integrated business model.retailing of beef, chicken, pork, milk,dairy products, eggs, edible oils, stockfeed, flour and bread. The Group alsohas large row cropping operations(principally maize, soya beans andwheat), with approximately 8,350 Ha ofrow crops under irrigation and 8,650 Haof rain‑fed/dry‑land crops available forplanting each year. The Group is alsoin the process of rolling out its WestAfrica expansion in Nigeria and Ghana,as well as developing a palm projectin Zambia. Zambeef Products PLC  Annual report 2012
  4. 4. 02 Company overview Highlights Revenue Gross profit 32% (ZMK) 33% (ZMK) 23% (USD) 25% (USD) 2012: ZMK1,296 billion 2012: ZMK446 billion 2012: USD255 million 2012: USD88 million Successful integration of Mpongwe farm Zamanita upgrade and expansion Zambeef Products PLC  Annual report 2012
  5. 5. Company overview 03 Business review Corporate governance Financial statementsMaster Porkupgrade andexpansion Continued organic growth Zambeef Products PLC  Annual report 2012
  6. 6. 04 Company overview Zambeef at a glance Robust business model of vertical integration Who we are Farming Meat Dairy Manufacturing / division division Processing division • Huntley farm • Beef feedlots abattoirs • Edible oils plant • Sinazongwe farm • Chicken broilers abattoir • Stock feed plant • Chiawa farm • Chicken layers • Leather shoe plant • Mpongwe farm • Dairy farm • Mill bakery • Palm plantation • Piggery pig abattoir • Meat dairy processing plants • One of the largest irrigated row • One of the largest suppliers of beef in • One of the largest edible oil and soya cropping operations in Zambia. Zambia. cake producers in Zambia; adds value • 8,350 Ha irrigated and 8,650 Ha rain • 7 beef abattoirs and 3 feedlots located to the soya beans from the Zambeef fed, arable, developed land available throughout Zambia. farms; upgrade and expansion of plant for planting each year. • One of the largest chicken and egg completed during 2012, to increase soya • Crop production focused on soya producers in Zambia. crushing capacity to 100,000 MT p.a. beans during summer and wheat • One of the largest piggeries, pig and improve production efficiencies. during winter. abattoir and pork processing plants • Stock feed plant commissioned in 2010; • Capacity to produce 40,000 MT of soya in Zambia. adds value to the protein by-product from beans, 45,000 MT of wheat and 21,000 • Dairy farm with approximately 2,000 the Zamanita crushing plant; operating MT of maize p.a. dairy cattle, with 700 currently lactating. at close to full capacity (7,000 MT p.m.). • Current group storage capacity of over • Meat and dairy processing plants adds 115,000 MT. value in producing yoghurt, drinking • Farming division provides raw yoghurt, cheese, butter, milk based materials input for further value add juices and processed meat products. processing within the Group. • Wheat mill and bakery adds value to the wheat from the Zambeef farms. • Tannery and shoe plant adds value to the by-product of the beef abattoir division (cattle hides); producing leather, industrial footwear and protective leather clothing. Zambeef Products PLC  Annual report 2012
  7. 7. Company overview 05 Business review Corporate governance Financial statements Where we operate • arm site to house proposed F feedlot, abattoir, cold room and processing operations • 5 Shoprite butcheries • 4 self‑operated butcheries • 2 processing plants NigeriaRetailoutlets Ghana• Zambeef outlets• Shoprite butcheries• Zamchick inns • 2 Shoprite butcheries• Wholesale depots • 1 processing plant• Third parties• Vast majority of Zambeef products retailed directly to end consumer through extensive retail and wholesale Zambia distribution network.• Concessionary Agreement with Shoprite dating back to 1995, to manage the 20 Shoprite butcheries throughout Zambia.• Currently 90 retail outlets, three wholesale centres, eight fast food • 90 retail outlets, 3 wholesale depots outlets and 20 Shoprite butcheries in and 8 Zamchick Inns Zambia. • 20 Shoprite butcheries• West Africa provides an exciting • 10 abattoirs opportunity for the Zambeef Group, in • 3 processing plants partnership with Shoprite. • 5 farms• Zambeef also operates one of the largest transport and trucking fleets in Zambia and has its own workshop to service and maintain its vehicle fleet. Zambeef Products PLC  Annual report 2012
  8. 8. 06 Company overview Chairman’s statement “ he significant increase in the prosperity T of Zambia since 2005 has been remarkable and it is this growing prosperity which is the engine of Zambeef’s growth.” These results mark the end of the first full Politically, Zambia has a level of maturity During the year, turnover grew by 32 per financial year since the rights issue and that is lacking in most African countries. In cent. (ZMK) and 23 per cent. (USD) to admission of the Company’s shares to September 2011, Zambia witnessed one of ZMK1,296 billion (USD255 million) and trading on the AIM Market of the London the most peaceful transitions of power margins increased from 34.1 per cent. to Stock Exchange. This period has been one and presidency on the African continent. 34.4 per cent., resulting in an increase in of unprecedented capital investment, Since independence in 1964, Zambia has gross profit of 33 per cent. (ZMK) and 25 which I fully expect to be rewarded, both had five presidents, six general elections, per cent. to ZMK446 billion (USD88 million). in terms of profitability and cash all of which have been peaceful, and three generation. Zambia’s natural and different political parties in power, a proud However, the profit after tax results have demographic advantages, when coupled testament to Zambia’s political stability been impacted by a tax liability that the with a very strong management team’s and maturing multi‑party democracy. Zambia Revenue Authority (“ZRA”) is determination to pursue higher margins seeking to impose on Zamanita and throughout Zambeef’s diversified business This political stability and economic exchange losses (mostly unrealised) as a model, provide the foundations for this growth has led to Zambia being result of a weakening Zambian Kwacha. year’s excellent underlying results and for reclassified by the UN from an growth in the short and long term. “under‑developed” to a “developing” Profit after tax was ZMK63 billion (USD12 country. The significant increase in the million) (excluding the Zamanita tax Zambia fundamentals prosperity of Zambians since 2005 has provision) and ZMK13 billion (USD3 million) Zambia is one of the most successful been remarkable and it is this growing (including the tax provision). Exchange countries to emerge in Sub‑Saharan Africa prosperity which is the engine of losses for the year were ZMK19 billion (“SSA”), with strong, broad‑based, Zambeef’s growth. (USD4 million) (mostly unrealised) as a economic growth averaging over 6.5 per result of the weakening Zambian Kwacha. cent. over the last five years and which is Financial performance: expected to average 7 to 8 per cent. over Over the past financial year, against a The liability arising from the ZRA tax the next four years. Zambia has been global backdrop of economic slowdown, demand has been provided for in full, as ranked ninth in the IMF’s forecast of the uncertainty and turmoil in many financial announced in the Interim results in June world’s fastest growing global economies. markets, the Company has performed and we have now concluded the hearing creditably. The expanding Zambian at the Revenue Appeals Tribunal and are Factors contributing to Zambia’s economy has led to a significant increase awaiting judgement. We are hoping this impressive performance are good in the spending power of the growing will be before the end of the calendar year economic fundamentals, such as: single population. This has translated into and look forward to the Company being digit inflation; moderate interest rates; buoyant demand for the products and able to develop the business without the rising foreign currency reserves; and services provided by Zambeef. presence of this distraction for sustainable external debt. management and investors alike. Demand across most of our product lines In addition, Zambia has a considerable continues to outstrip supply. We have Zambeef’s integrated business model resource endowment in terms of fertile been addressing this, on an ongoing Although many facets of the Zambian soils, an abundance of available water, basis, via investment in capacity, such as political, fiscal and regulatory regime are good climate and weather and rainfall the upgrade and expansion of Zamanita’s maturing very quickly, it is still a relatively patterns. Indeed, it is estimated that up to soya crushing plant, Master Pork’s young capitalist society with many of the 40 per cent. of inland freshwater within processing plant, additional broiler and associated problems and issues. Probably SSA originates in Zambia. layer houses, an additional pig abattoir the greatest constraint on the growth of and new retail outlets, as well as the different Zambeef businesses is the refurbishing existing ones. shortage of input materials, including, Zambeef Products PLC  Annual report 2012
  9. 9. Company overview 07 Business review Corporate governance Financial statements Turnover Gross profit 32% (ZMK) 33% (ZMK) 23% (USD) 25% (USD) 2012: ZMK1,296 billion 2012: ZMK446 billion 2012: USD255 million 2012: USD88 millioninter alia, milk, soya, day old chicks and Stock feed: The expansion of capacity at Zamanitacattle. Therefore we need to be able to The growth of the poultry division has led represents the successful fulfilment ofmaintain control over as much of our to increased demand for stock feed to rear maximising the benefits of integrating itsupply chain as possible and considerable the birds. Existing local production was into the Group. The most significantmanagement effort is expended on insufficient to meet our needs, in terms of advantage of which is enabling the Groupstimulating and securing supply. both quantity and quality. We established to move away from expensive imports our own stock feed division and three which attract low margins and towardsWestern capital markets have steered years after commencing operations, this more productive higher margin crushingbusinesses to specialise in one, or a few, division is now one of the leading regional and processing activities.core areas – a model that suits developed producers of stock feed and, importantly,economies, where diversified conglomerates is essential to the success and growth of Mpongwe farm:are now increasingly rare. Given that, as our fast growing poultry division. Soya seed is the prime raw material forexplained above, Zambeef faces challenges the oil seed meal used by the stock feedin the supply of raw products coupled with Approximately 35 per cent. of this division in the production of stock feed. Itburgeoning demand from consumers for division’s production is for internal also produces the most desirable cookingprocessed products, the Group has to source consumption, of which over 80 per cent. is oil available on the domestic, consumerraw produce from across our own business, for the Group’s poultry division. The stock market. Soya is therefore the critical inputensuring supply and guaranteeing quality. It feed division now accounts for 12 per cent. for Zamanita’s crushing operation. Historicis this model that has elevated Zambeef of Group turnover and 10 per cent. of gross soya production in Zambia and theabove its peers, both domestically and in the profits; turnover and gross profit growth surrounding region has been erratic,Sub‑Saharan region. over the last three years has been leading to supply deficiencies, which impressive, at 68 per cent. and 66 per resulted in Zamanita experiencing majorThe following case studies are examples of cent. respectively. input sourcing problems and created ahow some of our divisions have emerged: significant exposure to price fluctuations. Zamanita: Having a large internal production base ofPoultry: Zambeef acquired Zamanita in January soya will provide Zamanita with theAs the spending power of the population 2008 as part of a process of vertical majority of its soya requirements fromimproves, the demand for poultry and integration, enabling it to add value to within the Group. In 2011, the total annualpoultry products in the Zambeef stores edible oil seeds such as soya beans soya production of Zambia was c.120,000has become increasingly apparent. Local produced by the Zambeef farms, while metric tons (“MT”), and c.200,000 MT insuppliers have been unable to meet the obtaining a source of supply of feed meal, 2012. At capacity, Zamanita will requirehigh quality standards and volumes which is the primary ingredient in stock 100,000 MT of soya per annum. Of thisdemanded by our customers. Importation, feed production. Zamanita is one of amount, Mpongwe farm has, during thison a large scale, with its logistic costs and the largest edible oil and soya meal year, grown 30,766 MT and there is thechallenges, was not a viable solution. producers in Zambia. Its acquisition by potential to increase this amount throughAccordingly, it was necessary to enter the Zambeef was a logical diversification, to expansion of the growing area. Total soyapoultry industry ourselves. Today, protect the supply of feed meal and to production across all the Zambeef groupZambeef is one of the leading Zambian enter the cooking oil market, which is an farms this year amounted to 40,137 MT.poultry producers. The poultry division important basic commodity, forming part This, together with the 40,000 MT we havenow accounts for 8 per cent. of Group of the essential consumer shopping list secured from third party commercialturnover and 7 per cent. of gross profits; in our retail outlets. With its recently farmers, means that the Group now has turnover and gross profit growth over the completed upgrade and expansion, in excess of 80,000 MT of soya beans last three years has been impressive, at Zamanita will become one of the largest in storage, which stabilises Zamanita’s27 per cent. and 24 per cent. respectively. and most strategic divisions of the Group. business and provides continuity of Zambeef Products PLC  Annual report 2012
  10. 10. 08 Company overview Chairman’s statement continued oil seed meal supply for the stock feed can now look forward to returning The Board also believes that the return to division, which is then able to supply Zambeef to a cash generating position cash generation will enable the Company other Group divisions with their over the course of the next twelve months, to start paying meaningful dividends from feed requirements. one of the key strategic targets set out at 2014 onwards. the time of the Group’s IPO in June 2011. In each enterprise, we strive to be “best of With the progress made during the last breed” and we are recognised as such in It is important to reiterate that Zambeef’s year, and the growth opportunity offered most of our divisions. This strategy of integrated business model is part of a by Zambia’s developing economy, integration and diversification also well‑considered strategy, going back Zambeef is well placed to achieve its de‑risks the Company, as it reduces the many years, aimed at risk and earnings long‑term ambition to become one of the impact of cyclical fluctuations in volatility reduction and value‑add and largest food producers in the region. performance across the divisions that can margin capture throughout the value Therefore we look forward to the future result from shifts in the demand patterns chain. The return to cash generation with confidence. of our customers. Most importantly, it following the successful acquisition and allows the Group to capture and retain integration of Mpongwe farm, together margins throughout the value chain. with the successful completion of the Zamanita upgrade and expansion, means Outlook that we will be able to reinvest in the Following the successful acquisition of business to fund organic growth. We will Mpongwe farm in June 2011, the continue to make targeted investments integration has been very smooth and the in infrastructure and facilities aimed at Dr. Jacob Mwanza resulting performance has exceeded satisfying the growing consumer demand Chairman Directors’ expectations. Crop production is within our markets and maintaining November 2012 ahead of budget and the additional soya strong margins. beans produced from Mpongwe farm and the doubling of capacity at Zamanita will Major areas of capex investment over the provide the raw materials essential for our next 18 months will be to increase fast growing stock feed and protein production and efficiency levels in the divisions. As a result, Zambeef is in an following areas: excellent position to meet the challenge of a. Expansion of the dairy herd and growing demand for food in the region. increase in production per animal. b. Completion of the new milk processing The large capital investments, especially in facility at Huntley farm, which will the cropping division, over the last two increase production capacity from years have led to an increase in working 25,000 litres per day to 60,000 litres per capital requirements, resulting in net cash day. outflows. Furthermore, the Zamanita soya c. Expansion of the stock feed capacity crushing plant was shut for almost ten with the installation of a third pelleting months in order to carry out the upgrade line and a mixer to produce feed and expansion, which is now complete. mashes. This, together with the fact that we have d. Planned opening of two new wholesale produced and procured in excess of centres, four new retail outlets and 80,000 MT of soya beans, means that we refurbishing three existing outlets. Zambeef Products PLC  Annual report 2012
  11. 11. 09Zambeef Products PLC  Annual report 2012
  12. 12. 10 Company overview Zambia – an attractive investment destination “ 5 years ago, the world came together to feed Africa; 2 in 25 years’ time, Africa could be feeding the world.” Hilary Benn, former UK Secretary of State for International Development Global agriculture and food overview • Factors contributing to Zambia’s Attractive Zambia • Global agricultural industry impressive performance are: good agriculture fundamentals underpinned by constantly expanding economic fundamentals, such as low, • Zambia’s potential to develop its population, resulting in increased single digit inflation; low interest rates; agricultural sector is tremendous, given demand for food. rising foreign currency reserves; and its considerable resource endowment in • Global meat consumption has grown sustainable external debt (at less than terms of virgin land with good soils, rapidly over the last 20 years. 15 per cent. of GDP). abundant labour, good weather/ • Over the last 30 years, global • Rated B+ by SP and Moodys and climate/rainfall and abundant water. population has grown on average by recently issued a USD750 million bond • Of Zambia’s total land area (752,620km2), c.8 million people p.a.; current world at a coupon rate of 5.375 per cent., 58 per cent. is classified as having population at 7 billion and estimated to which was heavily over‑subscribed. medium to high potential for agricultural reach 9.2 billion by 2050. • Highly attractive demographic profile; production. • Global GDP has risen by 77 per cent. with a current population of c.13.6 • Yet only c.10 per cent. of Zambia’s land over the last 10 years. million, Zambia’s population has is cultivated, giving the sector • Growth potential in revenues grown by nearly 10 million since 1960, significant potential for growth. generated by African agriculture is is one of the fastest growing • It is estimated that up to 40 per cent. of estimated to reach USD880 billion populations in the world. The consumer inland fresh water in Sub‑Saharan revenue by 2030. sector grew at an average of 14.6 per Africa originates in Zambia. • In 2008, household spending in Africa cent. over the past decade and • Zambia rainfall ranges from 800mm to was primarily on food, which urbanisation is expected to grow by 1,400mm annually, making it suitable accounted for 40 per cent. of overall 31.2 per cent. between 2010–2020. for a broad range of crops and spending at USD369 billion. • Duty free access to regional, wider livestock. • Many countries in Africa remain African and the USA markets under • Zambia has two full growing seasons undeveloped agriculturally, despite SADC (Southern African Development per year. having ideal soil conditions, weather, Community), COMESA (Common • The Zambian Government and World water supplies, etc. Market for Eastern and Southern Africa) Bank have been strong drivers for the • Sub‑Saharan Africa, and especially Free Trade Agreements and AGOA sector in recent years. Zambia, provides an excellent (African Growth and Opportunity Act). opportunity to increase the current • Superior stock exchange performance Zambia: one of SSA’s more levels of food production. of the Lusaka Stock Exchange (“LuSE”), stable democracies with almost 100 per cent. growth in • Zambia has a level of political maturity Zambia: strong economic fundamentals market capitalisation between that is lacking in most African countries. • One of the fastest growing economies 2005–2010. Even though the LuSE is one • In September 2011, Zambia witnessed in Sub‑Saharan Africa, with GDP growth of Africa’s smaller stock exchanges, its one of the most peaceful transitions of averaging more than 6.5 per cent. over performance has by far surpassed power and presidency on the African the last five years; preliminary GDP most African and global indices. The continent. growth estimate for 2012 is 7 per cent. LuSE index’s remarkable rise of c.80 per • Since independence in 1964, Zambia and expected to average 7 to 8 per cent. between 2007–2010 was recorded has had five presidents, six general cent. over the next four years. despite the global economic downturn elections, all of which have been • Ranked ninth in the IMF’s forecast of the of 2008–2009. peaceful, and three different political world’s fastest growing global parties in power, a proud testament to economies. Zambia’s political stability and maturing multi‑party democracy. Zambeef Products PLC  Annual report 2012
  13. 13. Company overview 11 Business review Corporate governanceZambeef – an attractive Financial statementsinvestment opportunity Sound macroeconomic backdrop of Sub‑Saharan Africa Experienced Large supplier management of cropping “Farm with established and protein track record in Zambia Fully diversified and integrated to Strong, recognised brands Fork” business model Global demand for food forecast to increase Zambeef Products PLC  Annual report 2012
  14. 14. 12 Business review Zambeef Products PLC  Annual report 2012
  15. 15. 13Zambeef Products PLC  Annual report 2012
  16. 16. 14 Business review Chief Executive’s review “ e have invested significantly in our core W businesses to generate organic growth and to address supply constraints. This will allow the Group to narrow the gap between supply capacity and consumer demand in the Zambian market.” I am pleased to present results for the year it was 90:10. More details on our debt Revenue ended 30 September 2012, which show profile and structure is contained in the continued growth in the core business finance report below. 32% (ZMK) year‑on‑year, supported by the ongoing growth of the Zambian economy and higher disposable income amongst We have also invested significantly in our core businesses, to generate organic 23% (USD) our customers. During the year, turnover increased by growth and to address capacity and supply constraints, allowing the Group to narrow the gap between supply capacity 2012: ZMK1,296 billion 32 per cent. (ZMK) and 23 per cent. (USD) and consumer demand in the Zambian 2012: USD255 million and margins increased from 34.1 per cent. market. Details of the Group’s most notable to 34.4 per cent., resulting in an increase investments during the year include: in gross profits of 33 per cent. (ZMK) and 1. Master Pork commissioned a new, Gross profit 25 per cent. (USD) to ZMK446 billion state‑of‑the‑art Hirsch‑Pro 400 (USD88 million). Administrative overheads automated processing plant, capable 33% (ZMK) increased by 46 per cent. (ZMK) and 37 per cent. (USD) largely as a result of the introduction of Mpongwe farm operations of processing 30 MT of meat products per day, an increase of 15 MT per day. Total current processing capacity is now 25% (USD) into the Group. Profit after tax (excluding the Zamanita tax 185 MT per day. Master Pork also built an additional abattoir in Chingola, which should deliver an additional 100 2012: ZMK446 billion provision) increased substantially by 41 per pigs per day. 2012: USD88 million cent. (ZMK) and 31 per cent. (USD) to 2. 20 new broiler houses and two new ZMK63 billion (USD12 million). Profit after layer houses built during the year, tax (including the Zamanita tax provision) which will increase the number of was ZMK13 billion (USD3 million). broilers by 720,000 per annum and the number of eggs by 11,000,000 per The Zambian Kwacha also weakened annum. during the year by 6.3 per cent. versus the 3. Our retail footprint continues to US Dollar, leading to an exchange loss of increase with seven new stores opened ZMK19 billion (USD4 million), mostly and two stores refurbished during the unrealised, as a result of translating our year bringing our total retail chain foreign currency denominated debt into outlets to 101 in Zambia (excluding the the local currency. In order to mitigate this, 20 Shoprite butcheries). we have been converting some existing debt and accessing some new debt in I believe that Zambeef is well positioned to Zambian Kwacha, which has been more benefit as one of the leading food providers attractive due to Kwacha lending rates in Zambia and with opportunities to serve reducing during the last 12 months. Our the neighbouring region. debt profile is now 80 per cent. US Dollar and 20 per cent. Zambian Kwacha; in 2011, Zambeef Products PLC  Annual report 2012
  17. 17. Company overview 15 Business review Corporate governance Financial statementsCapacity expansion projects Zambeef Products PLC  Annual report 2012
  18. 18. 16 Business review Chief Executive’s review continued Operational report The strategic fit of the cropping division Good supply of choice beef was Cropping within the Zambeef business model is to maintained due to an aggressive Year to Year to % of provide the raw materials input (soya procurement policy and both demand and 30 Sept 30 Sept % Group beans, wheat and maize) for further sales were above expectations for the USD’Ms 2012 2011 change (2012) margin enhancing and value adding year, partly due to the low availability of Revenue 44 23 89 15 processing in Zamanita, stock feed and traditional beef and its substitution into Gross flour milling divisions. It also provides a Zambeef’s retail outlets that would profit 20 9 137 22 natural hedge to the downstream normally stock cheaper cuts of lower value businesses’ exposure to rising commodity meat. This change was very well received, The cropping season in Zambia is split prices and a strengthening US Dollar. despite the higher price, demonstrating into Summer (November – March) and that quality always has a market. Winter (April – September). Beef Year to Year to % of Increased demand for higher priced cuts 30 Sept 30 Sept % Group of beef from hotels and restaurants Turnover in the cropping division USD’Ms 2012 2011 change (2012) increased largely due to the Mpongwe increased, which we were able to meet Revenue 64 59 9 22 from our own stocks. Feedlot numbers are farm acquisition, which accounted for 38 per cent. of cropping turnover. Gross being kept high and extra cattle are being profit 22 17 33 24 stocked at Mpongwe farm to ensure our A total of 15,436 hectares (“Ha”) of summer supply is able to meet demand for the cropping was planted this year, of which Turnover growth in the beef division was coming year. the majority was soya beans (12,193 Ha). largely driven by price. Maize was planted across an aggregate Chicken Year to Year to % of of 2,111 Ha. The Group harvested 40,137 MT Demand for beef continued to remain very 30 Sept 30 Sept % Group of soya beans, at an average of 3.29 MT/ strong throughout the year – for both USD’Ms 2012 2011 change (2012) Ha, against a budget of 36,065 MT (2.96 choice feedlot beef and traditional beef – Revenue 24 22 6 8 MT/Ha). This was largely due to good and far exceeded supply. In order to yields being achieved by Mpongwe farm address this demand/supply imbalance, Gross profit 7 5 24 7 (4.5 MT/Ha on irrigated fields and 3.6 MT/ the Group has done the following: Ha on rain fed fields). 21,751 MT of maize 1. introduced a minimum guaranteed was harvested, at an average of 10.3 MT/ floor price for traditional cattle, to Turnover in the chicken division grew due Ha, against a budget of 19,347 MT (9.16 lessen the seasonal effects of cattle to increases in both prices and volumes. MT/Ha). Again this can be attributed to supply and to encourage small scale higher than average yields at Mpongwe farmers to supply all year round; and The demand for chicken has been very farm, which averaged 9.5 MT/Ha. 2. initiated programmes to help and similar to that of beef and, again, has educate small‑scale cattle farmers in outstripped supply for most of the year. A total of 8,082 Ha of winter cropping was remote areas, which will result in greater 20 extra broiler houses were been built planted in 2012, mostly wheat (6,663 Ha). availability of cattle, improved quality and and stocked in 2012, such that our supply is We harvested 45,308 MT (averaging 6.61 heavier animals reaching the Zambeef now meeting demand on both whole birds MT/Ha), although Mpongwe farm satellite abattoirs and, therefore, an and portions, with healthy stocks in place produced very good results at 8.9 MT/Ha. improved supply of beef all year round. It to carry through the Christmas period. is hoped that the programme will also have the effect of rejuvenating the small scale beef sector, which has been declining for many years. Zambeef Products PLC  Annual report 2012
  19. 19. Company overview 17 Business review Corporate governance Financial statementsPork Milk and Dairy Milk powder imports, which are used for Year to Year to % of Year to Year to % of the production of the value added 30 Sept 30 Sept % Group 30 Sept 30 Sept % Group products, were the subject of a temporaryUSD’Ms 2012 2011 change (2012) USD’Ms 2012 2011 change (2012) import moratorium between April andRevenue 23 18 30 8 Revenue 10 11 (4) 4 June 2012. As these products have theGross Gross highest gross profit margins and were profit 7 5 23 7 profit 6 7 (14) 6 produced in very limited quantities, the profitability and sales value of this sectorTurnover growth in the pork division was Sales and profitability have been lower was adversely affected. Milk powderboth price and volume driven. than the previous year, entirely because imports have now been reinstated by the we were unable to produce or purchase Government and supply of the valueThe demand for pork continues to grow sufficient milk. Demand far outstripped added products is back to normal.and, as with beef and chicken, demand supply throughout the year andoutstripped supply for most of the year. management estimates that Zambeef Edible oils Year to Year to % ofFurthermore, the Livingstone abattoir was is not fulfilling as much as 50 per cent. 30 Sept 30 Sept % Groupclosed for three months due to a Foot and of this demand. USD’Ms 2012 2011 change (2012)Mouth Disease outbreak in the province, Revenue 47 59 (20) 16which restricted capacity. This is an area in which we are concentrating focus and resource Gross profit* 10 13 (25) 10In order to address this demand/supply including:imbalance: 1. improving the health and productivity of * Excludes ZRA liability of USD7 million.1. prices to suppliers were increased to the Zambeef dairy herd through better secure supply; management practices (and As previously described, Zamanita has2. a guaranteed minimum floor price was personnel); undergone a transitional year, shutting introduced, for small scale producers; 2. improving the nutrition available by down its soya crushing and Solvent3. a new pig abattoir was built in planting lucerne (also known as alfalfa) Extraction Plant in December 2011 (having Chingola; and at the Chiawa farm, fertilising crushed 8,000 MT of beans plus 2,000 MT4. a new, state‑of‑the‑art Hirsch‑Pro 400 previously under-irrigated pastures, through a toll crush arrangement this automated processing plant was better quality and increased availability financial year) in order to undergo a major commissioned, capable of processing of silage to improve yields; upgrade and expansion, which has 30 MT of meat products per day and 3. 180 in‑calf and young heifers were doubled the capacity for soya bean extending the range of value‑added purchased from South Africa, which will crushing to 100,000 MT per annum, which processed meat products. start producing milk towards the end of was completed in September 2012. The the next calendar year; and upgrade improved efficiency and reducedThis strategy of guaranteeing a market 4. more heifers from the existing herd will costs of production to a level comparableand a minimum price has proved to be also come into production in the longer with the best facilities anywhere in thevery popular with supply now beginning to term and the number of cows in‑milk world and we now have a plant that willkeep pace with the ever increasing will be built up to 1,000 over the next 18 support Zambeef’s growth strategy welldemand, which management hopes will to 24 months, whilst the yield per into the future. Additionally, an extracontinue into the future. animal will increase by approximately 10,000 MT of silo storage space was 25 per cent. as a result of improved added to cope with the doubling of nutrition and management. production. An upgrade of the oil refinery was also undertaken, refining capacity has increased by 50 per cent., again, to be able to refine the increased volume of oil produced with the new plant. Zambeef Products PLC  Annual report 2012
  20. 20. 18 Business review Chief Executive’s review continued The ten month shutdown meant that As chicken production increases within the Egg sales and profitability were Zamanita had to import both crude soya Group, it will require more stock feed. A disappointing and considerably below last oil and palm oil, whilst the stock feed revamped mixer is being assembled to year, mainly due to a disease outbreak in division had to import soya cake for part of relieve pressure on the pelleting lines and the early part of the year, from which it took the year. This has reduced the profitability by late January 2013, this should add a several months to recover. Production was of Zamanita, as retailing imported oil is a further 3,000 MT of mashes per month. A low but demand was very strong. The low margin business. third pelleting line, which will add a further disease problem has now been eradicated 30 per cent. capacity, is at an advanced and production is back to normal. Cotton crushing has been ongoing planning stage but will only come into throughout the upgrade and enabled production in nine to twelve months. Two extra layer houses are being stocked Zamanita to maintain more than a and an extra 32,000 eggs per day will be breakeven position during the months With the increased soya secured by the available from February 2013, which is a when the main part of the plant was down. Group, and with the Zamanita upgrade 40 per cent. increase on our current and expansion now completed, we expect production. Zamanita is now producing its own soya the stock feed division to go from strength oil and soya cake. The demand for cake to strength, and are hopeful that by the Mill and bakery within Zambia is being satisfied and end of the next financial year, we should Year to Year to % of approximately 3,000 MT per month is be producing around 12,000 MT of feed 30 Sept 30 Sept % Group USD’Ms 2012 2011 change (2012) being exported to Zimbabwe. Both local per month. and export demand is high, with contracts Revenue 18 15 21 6 secured until April 2013. All the cake We will also introduce the solvent Gross Zamanita will produce this season has extracted soya cake produced by profit 4.5 1.9 135 5 been pre sold. Zamanita into our agency outlets, further increasing sales volume and providing This division has performed well Zamanita is currently crushing at 250 MT small scale farmers with more options to compared to last year. Most of the of beans per day and building up to its feed their livestock. profitability has come from the milling of maximum capacity of 300 MT per day. wheat, with the demand for flour being The “Novatek” stock feed brand is now high, particularly in the Zambeef shops. Stock feed recognised as the producer of one of the At present 70% of our flour is sold through Year to Year to % of best quality feeds in Zambia and has now our own retail network and Shoprite, 30 Sept 30 Sept % Group become the market leader. This has been USD’Ms 2012 2011 change (2012) either as flour or bread. achieved just three years after entering Revenue 37 27 37 12 the commercial stock feed business. Margins in the Bakery division were under Gross pressure due to intense competition, higher profit 10 6 66 10 Eggs raw material input costs and high transport Year to Year to % of costs resulting from supplying bread to 30 Sept 30 Sept % Group Both price and volume increases drove USD’Ms 2012 2011 change (2012) some of our distant retail outlets. However, turnover growth in the stock feed division. Zambeef is currently the only national Revenue 3.6 4.2 (15) 1 supplier of bread and therefore in a The stock feed division has had another Gross position of strength, and it is this strength profit 1.6 2 (19) 2 very good year. Despite running at we will try and capitalise on next year to capacity, consistently producing 7,000 MT of generate higher volumes and margins. feed per month, it was still unable to meet the demand from third party customers. Zambeef Products PLC  Annual report 2012
  21. 21. Company overview 19 Business review Corporate governance Financial statementsLeather and shoe It is envisaged that a further two new We are now in the final stages of Year to Year to % of wholesale centres and four new retail constructing our beef and pork abattoir at 30 Sept 30 Sept % Group outlets will be opened and three existing our Ikene farm, which consists of aUSD’Ms 2012 2011 change (2012) retail outlets will be refurbished over the modern slaughtering line andRevenue 4 2.5 56 1 next twelve months. refrigeration. We are confident that theGross chicken houses to be erected on the farm, profit 2.1 0.7 195 2 It is not only our own retail outlets that as well as the extension of the piggery have seen good growth but the Shoprite operation and the addition of cattle andThis division has had an excellent year. In butcheries and sales to Africa camps for the feedlot will be successful.addition to running the tannery at 100 per Supermarkets have also grown We are also in the process of relocatingcent. capacity, another facility is being throughout the year. our pork processing plant from Lekkerented in order to process all the hides (Lagos) to our Ikene farm and henceavailable. An average of 8,000 hides per West Africa streamlining the operations in Nigeria.month are now being processed (65 per Year to Year to % of This plant has the capacity to produce 30 Sept 30 Sept % Group 5 MT of processed meat products per day.cent. being from Zambeef). USD’Ms 2012 2011 change (2012) Revenue 13 8 55 4Demand for shoes is increasing as areexports to Zimbabwe. Shoe production is Gross profit 2.5 2.4 1 3now approaching 700 pairs per day(compared with less than 300 last year). We continue to roll out our West AfricaThis division is strategic to the overall expansion plans to gear up on capacityZambeef model, as it creates value in the resulting from the expansion of the Shoprite Francis Groganby‑product of our beef abattoir division footprint in Nigeria and Ghana. Currently, Chief Executive(cattle hides). The export of leather to there are five Shoprite stores in Nigeria November 2012regional and international markets also (three in Lagos, one in Abuja and one inprovides valuable foreign exchange Enugu), and two Shoprite stores in Ghanaearnings for the Group. (both in Accra). The next Shoprite store to open in Nigeria will be Ilorin (NovemberRetail outlets 2012), Kano (April 2013), Ibadan (DecemberIncreasing demand across our product 2013) and Apapa (2014). Additional sites inrange has put pressure on our retail outlets Lagos and Abuja are also under review.to keep shelves full and avoid stock outs. Shoprite is expanding and it is important that Master Meats (Nigeria) is able toEspecially pleasing is the success of the expand in line with Shoprite.two new Zambeef wholesale outlets(Kitwe and Lusaka) which have becomeour two highest turnover outlets. This is amodel that will be rolled out in the future(the next one being in Solwezi). Zambeef Products PLC  Annual report 2012
  22. 22. 20 Business review Finance report “ xcluding the tax provision, we have made E progress against all of our financial goals, which consist of rolling annual targets for key elements of both the income statement and the balance sheet.” The financial year has seen Zambeef 2. Increases in input costs as a direct Revenue continue to make significant strides with result of the statutory instrument on respect to large growth in turnover of over minimum wages. 32% (ZMK) 31 per cent. in ZMK terms from ZMK983 billion to ZMK1,295 billion and 23 per cent. in US Dollar terms from USD207 million to 3. Increases in energy costs caused by an increase in prices and tariffs. 4. The depreciation of the Zambian 23% (USD) USD255 million. This exceeds the Board’s internal threshold expectations for growth of at least inflation plus GDP. Kwacha, which has led to unrealised exchange differences being reported. 2012: ZMK1,296 billion In addition to the above, there has been 2012: USD255 million One of the key challenges we have faced is an increase in costs caused by inflation. the ZRA tax liability imposed on Zamanita Limited with respect to importation of palm As such, the cost to income ratio has Operating profit* oil in previous financial years. Details of this increased to 26 per cent. were announced to the market in February 57% (ZMK) 2012, with a further update provided in April 2012. In line with increased turnover and improved gross margins, and taking into account negative operating factors as 47% (USD) Excluding the ZRA provision, gross margins increased from 34.1 per cent. to 37 per cent. Including the ZRA provision, highlighted above, the Group profit for the year, excluding the ZRA provision, has increased by 41 per cent. (ZMK) and 31 per 2012: ZMK110 billion gross margins have increased from 34.1 cent. (USD) from ZMK44.5 billion (USD9.4 2012: USD22 million per cent. to 34.4 per cent. million) to ZMK62.6 billion (USD12.3 million), leading to net income margins * xcludes the Zamanita ZRA provision of ZMK49 billion E One of the key contributors to the increasing from 4.5 per cent. in FY 2011 to (USD9.7 million). increased turnover and margins was the 4.8 per cent. in FY 2012. performance of Mpongwe farm which recorded very good yields. The Group incurred a taxation charge of ZMK2.9 billion (USD0.6 million) [2011: Group overheads increased by 46 per ZMK1.5 billion (USD0.3 million). The tax cent. (ZMK) and 37 per cent. (USD) during charge comprises corporation and income the year (40 per cent. (ZMK) and 31 per tax payable in respect of the Group’s cent. (USD) excluding the ZRA provision). profitable operating entities after taking This was a result of the issues highlighted into account tax losses and tax incentives. below: 1. The increase in minimum wages by Exchange losses for the year were over 60 per cent. brought about as a ZMK19 billion (USD4 million) (mostly result of the introduction of statutory unrealised) as a result of the weakening instruments and increase in the Zambian Kwacha. number of employees as a result of the expansion in the business. Zambeef Products PLC  Annual report 2012
  23. 23. Company overview 21 Business review Corporate governance Financial statements EBITDA* Group profit* 56% (ZMK) 41% (ZMK) 45% (USD) 31% (USD) 2012: ZMK138 billion 2012: ZMK63 billion 2012: USD27 million 2012: USD12 million* xcludes the Zamanita ZRA provision of ZMK49 billion E (USD9.7 million).EBITDA, excluding the ZRA provision, has g. Expansion and replacement of theincreased by 56 per cent. from ZMK88 trucking infrastructure at a cost of ZMK7billion (USD18.6 million) to ZMK138 billion billion (USD1.4 million).(USD27 million). The Group’s workingcapital has decreased significantly during This is expected to increase the Group’sthe year due to the build up of stock to market share in the various segments insatisfy the increased crushing capacity of future years thereby leading to higherZamanita, an increase in commodity profits and cash generation.prices and an increase in other stockitems, along with an increase in the size of With respect to debt capital, during theour farming operations during the year year Zambeef drew on a number of debtthrough the 10,600 Ha of farm land facilities as detailed below:acquired in FY 2011. 1. ZMK46.5 billion from Zanaco Bank which was used to fund the repaymentCapital expenditure during the year of the Commercial Paper subscribedamounted to ZMK132 billion (USD26 million) for in FY2011 and fund the dairy[2011: ZMK88.7 billion (USD18.7 million) excl. processing expansion.acquisition of Mpongwe farm assets and 2. Continued drawdown of the term fundingZMK323.5 billion (USD68 million) incl. for Zamanita Limited (total facility limit ofacquisition of Mpongwe farms assets] USD8 million) used for the expansion ofwhich was expended on various projects the oil seed crushing capacity.as highlighted in the CEO’s report. The main 3. USD30 million from the Internationalareas of expenditure were as follows: Finance Corporation (“IFC”) to financea. Expansion of processing facilities at capital expansion. Master Pork at a cost of ZMK17.5 billion 4. ZMK13.5 million in hire purchase from (USD3.4 million). Freddy Hirsch to finance the capitalb. Continued expansion of crushing expansion at Master Pork. capacity at Zamanita at a cost of ZMK41 billion (USD8 million). Zambeef increased its structured workingc. Expansion of processing capacity at the capital funding with Standard Chartered dairy plant at a cost of ZMK8 billion Bank Zambia PLC to assist in growing and (USD1.6 million). storage of cereal commodities.d. Expansion of broiler and layer operations at a cost of ZMK0.5 billion As explained in the Chairman’s statement, (USD0.1 million). major areas of capex investment overe. Continued investment into the palm the next 18 months will be to increase project at a cost of ZMK13 billion production and efficiency levels in the dairy, (USD2.6 million). milk processing plant, stock feed divisionf. Expansion of the retail footprint across and roll-out of new retail/wholesale outlets Zambia at a cost of ZMK5 billion as well as refurbishing existing retail outlets. (USD1 million). Zambeef Products PLC  Annual report 2012
  24. 24. 22 Business review Ratios statistics 2012** 2011 2010 2009* 2008* Statement of comprehensive income summary Revenue ZMK Bn 1,296 983.1 770.5 683.1 476.1 Gross profit ZMK Bn 445.8 334.9 242.1 199.6 178.9 Group profit attributable to equity holders of Zambeef Products PLC ZMK Bn 14.6 44.4 19.8 9.6 37.2 Earnings before interest, tax, depreciation amortisation (EBITDA) ZMK Bn 88.6 88.4 61.3 29.3 58.6 Revenue USD Mn 255.1 206.8 161.9 137.7 131.7 Gross profit USD Mn 87.7 70.5 50.9 40.2 49.5 Group profit attributable to equity holders of Zambeef Products PLC USD Mn 2.9 9.3 4.2 1.9 10.3 Earnings before interest, tax, depreciation amortisation (EBITDA) USD Mn 17.4 18.6 12.9 5.9 16.2 Statement of financial position summary Total assets ZMK Bn 1,616.5 1,177.1 779.3 711.6 718.9 Shareholders’ funds ZMK Bn 752.8 744.2 456 444.8 435.4 Total liabilities ZMK Bn 864.4 432.5 322.8 266.3 279.5 Total assets USD Mn 317 245.2 162.3 150.8 200.8 Shareholders’ funds USD Mn 147.6 155.0 95.0 94.2 121.6 Total liabilities USD Mn 169.5 90.1 67.3 56.4 78.1 Profitability return ratios Gross profit margin % 34.4 34.1 31.4 29.2 37.6 Net income margin % 1.1 4.5 2.6 1.4 7.8 Return on equity % 1.9 6.0 4.3 2.2 8.6 Asset turnover times 1.2 0.8 1.0 1.0 0.7 Liquidity ratios Current ratio times 1.4 1.5 1.4 1.1 1.3 Interest cover (using EBITDA) times 3.3 4.8 6.0 2.4 8.5 Capital structure ratios Long‑term debt/equity ratio % 47.7 24.2 30.3 10.1 10.9 Total debt/equity ratio % 87 41.2 48.3 40.8 35.4 Shareholders’ ratios Earnings per share ZMK 58.81 242.6 124.7 60.6 270.8 Dividend per share ZMK – 31.1 49.9 – 85.7 Earnings per share cents 1.16 5.1 2.6 1.2 7.5 Dividend per share cents – 0.8 1.0 – 2.4 Dividend cover times – 7.8 2.5 – 3.2 Dividend payout ratio % – 12.8 40.0 – 31.7 Dividend yield % – 1.0 1.3 – 1.4 Price earnings ratio times 44.2 12.8 30.2 66.0 23.3 Net asset value per share ZMK 3,035.9 3,000.9 2,873.5 2,802.5 2,743.1 Net asset value per share cents 59.5 62.5 59.9 59.4 76.6 Lusaka Stock Exchange statistics Market value per share   – At year end ZMK 2,600 3,100 3,770 4,000 6,300   – Highest ZMK 2,800 4,200 4,100 7,000 7,000   – Lowest ZMK 2,400 2,500 3,500 3,000 5,500 Number of shares issued 126,205,341 166,231,234 158,706,045 158,706,045 158,706,045 Closing market capitalisation ZMK Bn 328 515 598 635 1,000 Closing market capitalisation USD Mn 64 107 125 135 279 AIM statistics Market value per share   – At year end pence 36 42 – – –   – Highest pence 56.50 67 – – –   – Lowest pence 27.75 38 – – – Number of shares issued 121,772,854 81,746,961 – – – Closing market capitalisation GBP Mn 44 34 – – – Closing market capitalisation ZMK Bn 363 257 – – – Closing market capitalisation USD Mn 71 54 – – – ** Discontinued operations, namely Nanga Farms PLC ** he results for FY2012 includes the Zamanita ZRA provision of ZMK49 billion (USD9.7 million) charge to the statement of comprehensive income. T Zambeef Products PLC  Annual report 2012
  25. 25. Company overview 23 Business review Corporate governanceKey performance Financial statementsindicatorsTurnover Gross Profit Since 2010: 1,400 1,296 500 480 Turnover (USD) 1,200 23% 400 983 1,000 335 300 800 771 242 600 200 400 255 100 70 94 Gross Profit (USD) 207 34% 200 162 51 0 0 2010 2011 2012 2010 2011 2012 Turnover (ZMK’bn) Turnover (USD’m) Gross Profit (ZMK’bn) Gross Profit (USD’m) EBITDA (USD)2012 figures exclude EBITDA 45% 138the Zamanita ZRA 140provision. 120 100 88 80 61 Profit After Tax (USD) 31% 60 40 27 20 19 13 0 2010 2011 2012 EBITDA (ZMK’bn) EBITDA (USD’m)Profit After Tax Turnover 70 ■ Beef 22% ■ Zamchick Inn 1% 63 ■ Chicken 8% ■ Edible oils 16% 60 ■ Pork 8% ■ Mill and bakery 6% 50 ■ Cropping 15% ■ Leather and shoe 1% 45 ■ Stock feed 12% ■ West Africa 4% 40 ■ Eggs 1% ■ Fish 2% 30 ■ Milk and dairy 4% 20 20 12 10 9 4 0 2010 2011 2012 PAT (ZMK’bn) PAT (USD’m) Zambeef Products PLC  Annual report 2012

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