|
Joint Managing Directors Report 2005
 
Overview
Zambeef Products Plc Group has had a very successful year with
turnover increasing by 19%, profits after tax increasing by 15% and
net cash inflow from operating activities increasing by 96%.
The company can be proud of these results particularly in light of
the difficulties faced by the beef and feedlot divisions during the
year as a result of the Foot and Mouth disease outbreak in certain
parts of Zambia.
During the year, the company continued to aggressively expand its
non-beef operations which have now created a very well diversified
and vertically inter-grated agri-business involved from primary
production through to the retailing of finished products direct to
the end consumer.
In particular the development of the 2,000 hectare irrigation
project on the shores of Lake Kariba has established Zambeef as one
of the largest row cropping operations in Africa, which for the next
season will have 2,700 hectares under irrigation.
In addition, the large investments in Zambeef milk processing
facilities in order to produce a large range of value added products
have been extremely successful. These investments have seen the
farming and dairy divisions becoming two of Zambeef's most
profitable divisions.
With the beef division now returning to normal trading conditions as
well as the full benefits of the large investments in the Dairy and
Cropping divisions coming through, Zambeef can look forward to the
next financial year with a great deal of confidence.
 Beef Division
The beef division has had a second difficult year in a row. Although
operating profits were 15% up on the previous year, this division
has operated at well below its usual profitability for the last two
years.
During the first 5 months of the year, Zambeef suffered from a
serious shortage of manufacturing beef due to the total ban on the
movement of cattle from Southern Province following an outbreak of
Foot and Mouth disease in the Province. A large part of the
company's manufacturing beef is sourced from the large traditional
cattle herds in the province.
This shortage impacted severely on our wholesaling and processing
departments with volumes being severely reduced. Due to the severe
shortage of beef, beef prices increased to record levels and these
prices could not be passed unto the consumer resulting in margins
being squeezed.
At the end of February 2005 the ban was lifted resulting in a flood
of traditional beef to the urban areas. This flood of beef to the
informal sector resulted in beef prices crashing and demand being
very sluggish.
By the year end the situation had begun to normalize and our beef
division has started to operate at capacity again with margins
improving. In addition, during the year Zambeef completed a modern
abattoir in Namwala in Southern Province. This has been a resounding
success and is currently Zambeef's bussiest abattoir. As a result
Zambeef's beef division should return to being the flagship division
during the current year which will have a dramatic impact on the
company's results.
 Feedlot Division
This division has had a difficult year as well. After the lifting of
the ban on the movement of cattle from Southern Province, the large
influx of cattle both traditional and commercial resulted in beef
prices crashing. This also resulted in demand for prime feedlot beef
being very sluggish. During the year efficiencies have been improved
in the division and by the year end demand is returning to
normality. The quality of our feedlot beef continues to be of the
highest standard which has earned our beef an enviable reputation in
the region. This division should as a result show good growth in the
coming year.
 Chicken Broiler Division (Zamchick)
This division had an outstanding year with operating profits up by
32%. The difficulties in the beef industry resulted in increased
demand for chickens. The large investment in the stock feed plant
has resulted in our broilers achieving world class feed conversion
ratios. In addition our modern fully automated chicken abattoir
ensures our Zamchick products meet the highest international
standards. This division can expect to continue growing in the
coming year and is now a significant part of Zambeef's business
having increased from 33% to 50% of beef sales during the year.
 Layer Division (Zamchick Egg)
This layer operation has increased operating profits by 83% during
the year with turnover up by 58%. Zambeef has firmly established
itself as Zambia's only national egg supplier. This exceptional
performance has been helped by the top quality feed from Zambeef's
stock feed plant and the opening of new outlying butcheries where
the demand for eggs has been enormous.
 Dairy Operations (Zammilk)
During the year under review, Zambeef invested around $400,000 in
upgrading and automating the milk plant making the Zammilk milk
plant a world class facility. As part of this investment Zambeef
added a cream, butter, yoghurt and juice lines. In addition the
cheese plant has been commissioned. In particular the drinking
yoghurt under the brand name Zamsip has been a resounding success on
the market resulting in Zambeef having to order a second bottling
line. The first cheese, butter and cream is now being sold.
Apart from investing in our milk processing operations, Zambeef has
continued to expand the dairy herd and improve yields. Milk
production has increased by around 10%. Zambeef is now running one
of the largest dairy herds in Sub Saharan Africa. This division has
been one of the most profitable divisions with operating profits up
by 67% for the year. With the full effect of the value added
products coming on line during the next financial year, this
division together with the cropping division are expected to be
company's most exciting divisions next year.
 Farming Division
This has been best performing division during the year with profits
up by 108%. During the year, Zambeef acquired and developed a well
laid out farm at Sinazongwe on the shores of Lake Kariba. The farm
has a potential to irrigate 2,000 hectares but only had 240 hectares
operational when acquired. Zambeef has invested around US$6.8m into
this project and now has 1,550 hectares under irrigation. In the
coming year the last phase of developing this farm will be completed
taking the total area under irrigation up to 2,000 hectares.
When combined with the 700 hectares under irrigation at Chisamba
farming operations, Zambeef will have 2,700 hectares under
irrigation making the company one of the largest row cropping
operations in Africa. In order to reduce weather uncertainties, all
cropping expansion has been restricted to irrigated lands.
This massive expansion of farming operations will make Zambeef
almost self sufficient in maize and soya beans for its stock feed
production. With the large reduction in agricultural output in
Zimbabwe, there is a regional shortage of maize, soya beans and
wheat. This has resulted in record maize and wheat prices which have
had a beneficial effect on margins.
As a result this division will continue to see large growth in the
coming year.
 Zamchick Inns
During the last financial year, Zambeef continued its expansion of
the fast food chain under the brand name Zamchick Inn with the aim
of providing good value for money chicken and chips to the public.
These fast food outlets have proved to be a resounding success with
operating profits up by 325%. The first seven Zamchick Inns are now
fully operational and an eighth is due to open in the next six
weeks.
The monthly turnover has increased from K70 million a year ago to
K620 million. The turnover continues to grow on a monthly basis and
as a result we will continue to open more Zamchick Inns. This is not
only a high margin business in its own right but complements our
broiler operations well. We now have Zamchick Inns in four towns and
hope to expand into more towns the coming year and establish a truly
national fast food chain.
 Retailing Division
This division continues to be the engine room that drives Zambeef's
primary production. Zambeef sells its meat, chickens, dairy
products, eggs and processed meat products in a hygienic and
customer friendly environment through its 82 outlets throughout
Zambia.
During the year under review, Zambeef opened butcheries in four new
towns namely Livingstone, Choma, Petauke and Kasumbalesa. These
outlying outlets have proved to be a resounding success and the
company plans to continue opening outlets in outlying areas.
The retailing division was affected by the beef shortages and
non-availability of processed meat products for the first 5 months
of the year. Despite these setbacks turnover increased due to the
expansion of the non-beef divisions.
In order to better utilize this retailing network, Zambeef has
signed an arrangement with the cell phone companies to sell their
scratch cards in the outlets and is considering adding more ranges.
This division will continue to be the foundation of Zambeef's
operations and the marketing tool used to market the company's
products direct to the end consumer.
Zamleather
Zambeef's wholly owned subsidiary, Zamleather Ltd, has had a
disappointing year with operating profits down by 7% for the
combined operations. Zamleather operates both a tannery and a shoe
plant in Lusaka. The tannery had a difficult year while the shoe
operations have grown significantly during the year.
 a) Tannery
The tannery sells leather on the international market in the
semi-processed form called wet blues. The main exports of wet blues
are to China, Hong Kong, Vietnam and Italy. In addition, finished
leather is sold both within Zambia and the region. This year has
seen the international leather prices reduce significantly resulting
in lower margins. The tannery has managed to partially offset the
lower international prices by producing more finished leather for
the local and regional markets. Exports totalled US$1.2m during the
year.
 b) Zamshu
The shoe plant trades under the brand name Zamshu and is a major
producer of industrial footwear for the local and regional markets.
The shoe plant has steadily expanded its operations and is now
exporting its boots on a regular basis into the region. Zamshu is
looking to produce low cost shoes to sell through the Zambeef
retailing network which should significantly boost this division in
the current year.
As a result the shoe division is expected to show good growth in the
coming year.
Future Developments
The South African supermarket giant, Shoprite Checkers, are setting
up a supermarket network in Nigeria and have invited Zambeef to run
the butcheries in their stores. As a result Zambeef has incorporated
a 90% subsidiary in Nigeria called Master Meats Production and
Agriculture Company of Nigeria Ltd. The first Shoprite store opened on 15th December, 2005.
Appreciation
The very successful year would not have been possible without the
huge contribution and support of our staff. As Joint Managing
Directors we would like to extend our sincere appreciation to all
members of staff for their contribution to the success of the
company in the last year.
We would also like to extend our sincere thanks to our customers who
have supported our products during the year. Our commitment is to
continue to develop new quality products and continually improve our
existing product range. We will continue to strive to provide top
quality products at affordable prices throughout Zambia
We would also like to thank the
government institutions, our bankers and our suppliers who have
supported our operations during the year.
Finally we would like to thank our entire Board of Directors and
our Chairman, Dr Jacob Mwanza, for their valued support and
advice during the years.
Conclusion
Zambeef can look back with a
great deal of pride on its achievements during the year. The
Group is now a very well diversified and vertically integrated
agri-business. The company believes that it is well positioned
to enjoy sustainable real growth as a result of the well-focused
capital expenditure in the current year. In particular, with the
beef division returning to normal trading conditions and the
exciting expansion of the farming and dairy divisions coming
through, the company can look forward with a great deal of
confidence to the future.
|
