TIDMZAM
RNS Number : 3114K
Zambeef Products PLC
09 April 2018
9 April 2018
Zambeef Products plc
("Zambeef" or the "Group")
H1 2018 Trading Update
Zambeef (AIM: ZAM), the fully integrated cold chain foods
business with operations in Zambia, Nigeria and Ghana, provides an
update on its expected trading performance for the half year ending
31 March 2018 and announces that a recent outbreak of Foot &
Mouth disease (FMD) may adversely impact its operations and
financial performance for the second half of the year.
The Group's half year interim results are expected to be
announced during the week commencing 4 June 2018.
Completion of the disposal of 90 per cent. interest in Zampalm
Limited
Firstly, it was pleasing to complete and announce the sale on 6
April 2018 of 90 per cent. of Zambeef's shareholding in its wholly
owned subsidiary, Zampalm Limited, to IDC for a cash consideration
of USD16 million in line with the Board's ongoing strategic focus
on reducing Group debt.
Trading Overview
The Group currently expects its Operating Profit on continuing
activities for the half year to 31 March 2018 ("H1-FY18") to be in
line with market forecasts.
Gross margins in H1-FY18 across both the Retail and Cold Chain
Food Products division and the Stock Feed division are expected to
show improvement on the prior half year, when macro conditions in
Zambia were challenging, in part, due to falling soft commodity
prices. However, this improved performance has been partially
negated by higher operating expenses at both divisions (further
explained below).
Looking forward into H2-FY18, the Group expects performance from
its Stock Feed and Cropping Divisions will be in line with or ahead
of market forecasts. However, a recent outbreak of FMD in the
Chisamba and Chibombo districts of Zambia may adversely impact
profitability in H2-FY18 of the Kalundu dairy production unit
within the Cold Chain Food Products division (further explained
below). The Company anticipates providing further guidance on
expected full year profitability in its interim results.
Group capital expenditure in the full year is now likely to be
circa USD16.0 million rather than the USD14.5 million originally
projected due to further floor space additions to the new Kitwe
beef processing plant, which is expected to open in H2-FY2018, and
on a number of the new Retail Macro outlets, as set out further
below.
Retailing and Cold Chain Food Products Division
The Group expects overall Zambian retail sales growth of circa
12 per cent. in H1-FY18, with a strong like-for-like performance
from Zambeef's concessions within Shoprite's chain of stores.
During the first quarter of the year, three new Zambeef Macro
retail stores were successfully opened in Zambia, with a further
two Macro stores opened in the second quarter. The Group expects to
open a further three Macro stores in the second half of the year.
The Group has closed six small retail outlets in its ongoing drive
to optimise its retail estate.
Gross profit in the Retail and Cold Chain Food Products business
is expected to grow strongly in H1-FY18 versus the prior period,
with an improvement in gross profit margins across the beef,
chicken and egg categories. However, overhead expenses (principally
energy, distribution and HR) across an enlarged retail footprint
are expected to increase materially, as Zambia has moved to
market-based energy pricing over the past 12 months. Higher
distribution costs reflect the introduction of toll fees and in
October 2017, a 17 per cent. increase in diesel prices.
FMD outbreak
On 5 April 2018, the Zambian Ministry of Fisheries &
Livestock announced an outbreak of FMD on farms in the Chisamba and
Chibombo districts and has imposed movement restrictions upon
livestock in these districts.
Unfortunately, FMD has spread to, and been confirmed on, the
Group's Kalundu dairy farm in Chisamba district and daily milk
output has fallen sharply. Whilst the Group does not anticipate
having to compulsorily slaughter the entire herd, it is highly
likely that a number of animals will have to be culled. Kalundu
dairy farm usually supplies 40 per cent. of the Group's raw milk
requirements and, at present, our other milk suppliers are
unaffected by FMD. Our dairy processing operations and dairy
product sales are continuing normally using reconstituted milk to
meet any shortfall from Kalundu.
At present the Group's beef feedlot and slaughter operations at
Huntley Farm in Chibombo district are continuing to operate albeit
with additional bio-security and veterinary supervision measures.
The Group notes it has a diversified regional presence operating
five other beef abattoirs and a feedlot in areas not currently
impacted by FMD.
Looking ahead to H2-FY18, the Group expects performance from its
Beef, Chicken, Egg and Fish categories will be in line with market
expectations, subject to there being no broadening of the current
FMD outbreak. However, we are currently unable to accurately
quantify the financial impact of FMD at Kalundu on our Dairy
category within the Cold Chain Food Products Division as the herd
is still being treated. We will only be able to properly assess the
financial impact once we see the level of recovery in milk yields
post treatment. Further updates will be provided to the market as
and when the Group is able to accurately quantify the impact.
Stock Feed Division
The Stock Feed division has benefited from additional production
capacity following the opening of the new Mpongwe mill in August
2017. Sales volumes are expected to increase by circa 35 per cent
in H1-FY18, utilising a very pleasing 40 per cent. of the
additional available production capacity. However, revenue growth
is expected to be flat, reflecting the benefit for livestock
producers of lower old crop raw material prices.
Divisional Gross Profit performance has been encouraging, with
an improvement in gross margins versus H1-FY17 when margins were
compressed due to falling raw material prices. Growth in Operating
Profit for the full year is anticipated to be relatively modest
given the step change in depreciation expenses on the new mill but
is expected to be in line with or above market forecasts.
Cropping Division
Despite the dry conditions in January this year, the Group
expects yields from the summer crop (soya and maize) and Operating
Profit contribution for H1-FY18 from the Cropping Division to be in
line with market expectations.
It should be noted that the performance of the winter crops
(irrigated wheat and maize) are a key driver of the Cropping
Division's overall full year Operating Profit. Good seasonal
rainfall is expected to enable a further approximately 400 hectares
of more wheat to be planted than originally budgeted. As these
winter crops have yet to be planted, it would be premature for the
Directors to comment on crop prospects, other than to note that the
recent strengthening of both local and global soya and maize prices
from seven year lows is encouraging and should ensure that
Operating Profit in H2-FY18 will be in line with or above market
expectations.
Francis Grogan, Joint Chief Executive of Zambeef, commented:
"The Group has delivered a solid performance in the first half
with improved operating margins expected from all key divisions. We
are also pleased to have completed the Zampalm transaction on 6
April, which demonstrates the Board's ongoing strategic focus on
reducing Group debt.
"The outbreak of Foot and Mouth disease across the Chisamba and
Chibombo districts is very disappointing and despite our stringent
bio-security measures the outbreak has unfortunately spread to our
Kalundu dairy herd, severely impacting milk yields. However, our
milk processing operations and dairy product sales are continuing
normally using milk from our other suppliers and reconstituted
milk.
"Whilst the profitability of our Cold Chain Food Products
business in H2-FY18 may be materially and adversely impacted by
this outbreak, it is not currently possible to accurately quantify
the financial consequences as the herd is still being treated. We
will only be able to properly assess the financial implications of
FMD once we see the level of recovery in milk yields post
treatment. We are working very closely with the authorities to
assist them in ensuring this outbreak is contained.
"We anticipate providing further guidance on the Group's
expected full year profitability when we publish our Interim
results in June."
For further information, please contact:
Zambeef Products plc Tel: +260 (0) 211 369003
Francis Grogan, Joint Chief Executive Officer
Tim Pollock, Joint Chief Executive Officer
Strand Hanson Limited (Nominated & Financial Adviser) Tel: +44 (0) 20 7409 3494
James Spinney
Ritchie Balmer
Frederick Twist
finnCap (Broker) Tel: +44 (0) 20 7220 0500
Emily Morris
Christopher Raggett
Powerscourt (Financial PR) Tel: +44 (0) 20 7250 1446
Nick Dibden
Isabelle Saber
Notes to the editors
Information on Zambeef
The Zambeef Group is one of the largest integrated cold chain
food producers in Zambia, involved in the production, processing,
distribution and retailing of beef, chicken, pork, milk, eggs,
dairy products, fish, flour and stock feed. The Group also has
large cereal row cropping operations (principally maize, soya beans
and wheat), with approximately 7,971 hectares of row crops under
irrigation, which are planted twice a year and a further 8,623
hectares of rain-fed/dry-land crops available for planting each
year. Further information can be found on www.zambeefplc.com
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulations (EU) No. 596/2014 ("MAR").
-Ends-
This information is provided by RNS
The company news service from the London Stock Exchange
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