Zambeef's return to the red sends shares tumbling

Shares in Zambeef tumbled after the Zambia-based dairy-to-flour group confirmed a return into the red, blaming setbacks from a hog disease outbreak to increased competition, which has prompted a strategic rethink.

Zambeef shares, which are listed in London, plunged 13.5% to 18.9p in morning deals.

The drop followed the group's announcement of a $6.80m after-tax loss for the October-to-March half, compared with earnings of $6.59m a year before.

The decline reflected a cocktail of setbacks from the "sudden and unexpected volatility" in Zambia's currency, the kawacha, to an outbreak in the country of African swine fever, which forced the shutdown of the group's pork operation for three months.

Furthermore, "margins have come under pressure from increased new entrants" into the broader Zambian agriculture and food market.

Revenues fell 8.6% to $140.2m.

'Diversify the business'

However, Zambeef said that it was, in a drive "to address the domestic challenges being faced the group" seeking to "diversify the business outside of our core Zambian market".

This involves in part a quest on its own to become a "regional food player", particularly within the 15 countries, from the Democratic Republic of Congo to South Africa, which comprise the South Africa Development Community, with a population of 280m expected to grow by 5% over the next three years.

"A rapidly expanding consumer base, fuelled by an emerging middle class, increasing per capita income, rapid population growth and high levels of urbanisation, present significant and tangible opportunities," Zambeef chairman Jacob Mwanza said.

The group is also "actively exploring" further tie-ups "with global industry players" after the poultry joint venture with South Africa's Rainbow Chicken.

Zambeef also hinted at the potential for asset disposals, saying it was investigating ways of "realising some" of the capital gains revealed by an asset revaluation last year.

Dr Mwanza said: "There is an opportunity for us to unlock some of this value in order to strengthen our financial position," although seeing this in the context of "establishing strategic partnerships".

Divisional performances

The group's profits decline was led by the beef division, which continued to suffer a "hangover" from last year's allegations of formaldehyde tainting in supplies imported by the group, and the edible oils business, both of which saw drop of 33%.

Edible oil margins were hit by competition from unregulated imports, which added pressure to margins "that have also been depressed by exchange rate movements and increased competition".

However, the main earner, the cropping division, saw a more modest drop of 3.3% to$13.55m in profits, while the dairy business raised profits by 7.9% to $3.36m, helped by a rise in milk volumes both from its own operations and those bought in from external suppliers.

"Demand for milk and dairy products remains buoyant and we have made good progress with improving our yields, herd health conditions and the number of milking cows," Zambeef said.

'Further price share price weakness'

In the City, VSA Capital analyst Edward Hugo said that Zambeef's "renewed strategic focus seems sensible but will take time to accelerate.

"We expect further price share price weakness into the second half [of the year] as the macro-issues remain in place."

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