Overview
This has been an outstanding year for Zambeef with the Group
continuing it's excellent growth in existing markets while
developing into a multinational operation with the very
successful opening of its Nigerian subsidiary.
The Group's continued success is built around the well focused
strategy of adding maximum value to all primary production and
then selling these branded products directly to the end consumer
through the company's 88 retail outlets situated throughout
Zambia and now Nigeria.
During the year, the Zambian economy grew by around 5% largely
driven by the high investment in mining, agriculture and
tourism. The economy's growth rate is expected to increase to 6%
in 2007, resulting in real income growth. Zambeef is ideally
placed to benefit from this as a result of being the largest
provider and retailer of basic food products namely beef,
chicken, eggs and dairy products in the country.
Financial Overview
The Group has had an excellent financial year.
In US Dollar terms, turnover increased by 26 %, profit after tax
increased by 30%, and cash generated from operations increased
by 79%.
In Kwacha terms, turnover increased by 14%, profit after tax
increased by 18%, and cash generated from operations increased
by 61%.
This has been achieved by the continued expansion of all of its
operations while strong cost saving measures have been
implemented across the Group. This has resulted in the gross
margin increasing from 43.6% to 44.8%.
Based on these excellent results, the Board of Directors has
recommended a final dividend of K7bn. This, together with the
interim dividend of K1.5bn, will result in a total dividend pay
out of K8.5bn for 2006, which is 22% higher than last year's
dividend pay out of K7bn.
Operational Review
The Group continued to expand all divisions while paying
particular attention to developing new value added products and
thereby allowing the Group to retail higher margin products
through its retailing network.
In the Finance Department, the Group has implemented an advanced
information system that has significantly improved the
information and management systems. This financial system was
developed in anticipation of the Group's expected growth and
will keep pace with Zambeef's future developments.
The individual divisions are discussed in more detail below:
a) Beef Division
The beef division has had a very good year with operating
profits up by 23% in Kwacha terms and 37% in US Dollar terms.
The Group's strategy of opening regional abattoirs to ensure the
supply of beef has been very successful. The Group now has five
abattoirs strategically located throughout Zambia with two
further abattoirs due to be commissioned shortly. At the same
time a program to upgrade and modernize the Zambeef outlets
throughout Zambia is taking place to further strengthen the
Zambeef brand name. During the year, the company invested in
upgrading and expanding the beef processing and cooked product
section, resulting in large additional capacity for more value
added products. This should benefit this division in the next
financial year and the division looks forward to continued
strong growth.
)
Chicken Division
The Chicken division had a satisfactory year with operating
profits up by 5% in Kwacha terms and 17% in US Dollar terms. The
division saw a down-turn in sales at the start of the year after
the negative publicity regarding Avian Bird Flu. Although the
strain of flu currently affecting the international poultry
population has never been detected in Zambia, Zambeef takes the
threat seriously and strict bio-security measures have been put
in place to prevent any potential negative effects. Towards the
end of the financial year, demand picked up significantly and
the division is operating at record levels. During the year new
packaging has been introduced to strengthen the Zamchick brand,
while the division has expanded into the higher margin chicken
portion market, which has resulted in an increase in the margins
in this division. The division is having an excellent start to
the new financial year and expects a good year in 2007.
C)
Egg Division
This division saw an increase in operating profits by 1% in
Kwacha terms and 12% in US Dollar terms. The division has
continued to improve its efficiencies and during the year
started rearing its own point-of-lay pullets with significant
cost savings. During the next financial year, the division will
become self sufficient and produce all its own point-of-lay
pullets. Demand is currently extremely strong resulting in an
upward movement in prices and as a result the division expects
good growth in the 2006/7 financial year.
d) Dairy Division
This remains one of Zambeef's most exciting divisions with
operating profits up 21% in Kwacha terms and 34% in US Dollar
terms. During the year, the new value added lines have proved to
be a huge success with the drinking and eating yoghurts selling
especially well. As a result we are upgrading our batch
pasteuriser capacity from 3,000 litres to 24,000 litres per day,
which will allow the Group to fully exploit the drinking and
hard yoghurt markets. In addition the other value added lines
such as cream, butter and cheese are selling well. All
our
dairy brand names are growing in popularity throughout the
country.
On the production side, our dairy operated extremely well with
the yield per cow peaking at record levels of 28 litres per cow
and the daily production peaking at 27,000 litres of milk per
day.
Zambeef is currently commissioning a milk-based juice line,
which the company believes will be a great success. As a result,
this division expects to see continued strong growth in the next
financial year.
e) Cropping Division
The cropping division has continued to grow and has had a very
successful year. Zambeef now has 2,700 hectares under irrigation
and a further 1,500 hectares of dry land crops making the
company one of the largest row cropping operations in Africa.
The accounts show operating profits having decreased during the
year. However, this is very misleading as this arose due to
Zambeef having biological cropping stocks of US$3.6m at 30th
September 2005 representing mainly the company's winter wheat
crop. The year end exchange rate was K4,490/US$ and this crop
was sold in January at an exchange rate of K3,100/US$ resulting
in an accounting loss on the disposal of our wheat crop due to
the 30% appreciation of the currency. This exchange loss has
distorted the strong performance of this division.
The remainder of the cropping season has gone extremely well
with Zambeef obtaining excellent maize yields and selling its
maize at record prices. The winter wheat crop has been excellent
and prices both within Zambia and the world as a whole are
moving up. In addition, the continued shortage of maize, soya
and wheat in the region and the higher world prices bode well
for the cropping division in the next financial year.
f)
Master Meats Production and Agricultural Company of Nigeria Ltd
In December 2005, Zambeef took the bold step of setting up
operations in Nigeria, the second largest economy in Africa
after South Africa.
The South African supermarket chain, Shoprite Checkers, expanded
into the Nigerian market, with the first store opening in Lagos
on 16th December 2005. Shoprite requested Zambeef to join them
in this venture by taking the franchise on their butcheries.
We have a strong and mutually beneficial relationship with
Shoprite and in view of this, we decided to join Shoprite in
their expansion into the Nigerian market through the
establishment and setting-up of a 90% subsidiary in Nigeria
called Master Meats & Agro Production Company of Nigeria Ltd
(“Master Meats Nigeria”).
Master Meats Nigeria's performance over the last nine months
since inception has been impressive with the company recording a
healthy profit in its first year of operations.
The Zambeef/Master Meats butchery in Shoprite Lagos is now the
busiest Shoprite butchery anywhere in the world and continues to
grow on a monthly basis. This first outlet in Nigeria has shown
just how big the Nigerian market is and how large the consumer
spending power is. Shoprite have an ambitious rollout plan in
Nigeria and Zambeef will continue to take the franchise on all
the butcheries in the new supermarkets opened. We are in the
process of commissioning a meat processing plant. This will
allow us to produce and sell value added meat products, for
which there is a huge demand.
As a result Zambeef expects to achieve enormous growth in
Nigeria for the foreseeable future.
G)
Zamleather Ltd
Zambeef's wholly owned subsidiary, Zamleather Ltd, operates a
tannery and shoe plant in Lusaka. This company has had a good
year despite the strong appreciation of the Kwacha and most of
this company's income being dollar denominated. Operating
profits were up 17% in Kwacha terms and 30% in Dollar terms. The
tannery and shoe plant are separately described below:
i) Tannery
During the year the tannery secured contracts with two major
motor vehicle leather upholstery producers. This has been a huge
step forward for the tannery and helped to increase margins in
this division.
World leather prices have also been rising with average prices
having increased by over 20% in the last twelve months. We will
see the impact of the price and demand increases over the next
few months. To gear up for this increased demand, we are
expanding the tannery capacity from 70,000 hides per annum to
120,000 hides per annum. As a result 2007 looks very promising
for the tannery.
ii)
Zamshu
The shoe division of Zamleather had a relatively slow year.
However, after the year-end, two new large contracts have been
secured, one in Zambia and one in the Democratic Republic of
Congo, which collectively represent approximately 5 months of
last year's average turnover.
Future Developments - Wheat Mill and Bakery
In 2005 the Group expanded further its cropping operations and
as a result Zambeef now produces approximately 10% of Zambia's
wheat. In accordance with the Group's strategy to develop value
added products Zambeef has begun construction of a wheat mill
and bakery. The state of the art facilities will have the
capacity to mill 5 tons of wheat per hour (Zamflour) and bake
30,000 loaves of bread per day (Zamloaf).
This exciting step not only secures a market for our wheat
production, but it compliments our existing product lines and
further utilizes our existing distribution and retailing
network.
This is an extremely exciting project where Zambeef will be in a
unique position where it is totally vertically integrated from
the growing of the wheat to the milling and baking and finally
retailing the bread to the end consumer.
Staff and Board of Directors
