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Zambeef shares jump, as African drought boosts feed orders

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Zambeef shares soared 8% after the chicken-to-palm oil group said it was putting its "difficult period" behind it, unveiling a return the black, helped by demand for feed in drought-hit southern Africa.

The Zambian farm operator-to-meat retailer unveiled earnings of $8.96m for the October-to-March period, recovering from the losses of $3.96m a year before.

The improvement reflected in part a one-off boost from a settlement over a long-running tax dispute with Zambian authorities, allowing the writeback of some 34m Zambian kwacha, equivalent to $3.5m.

However, the group also booked a more than doubling, to $9.24m, in gross profit at its stock feed division, Novatek, which ships feed to southern African countries from Congo to Mozambique, many of which are struggling with drought blamed on the El Nino weather pattern.

"With the drought elsewhere in the region, it is likely that demand for Novatek stock feed outside Zambia will remain strong," Zambeef said.

'Abundance of water'

Zambia's own farms have fared, relatively, well in part thanks to escaping the worst of the southern African drought, but also for many farms, such as Zambeef's, to access to stored water, allowing irrigation.

"Zambia's abundance of water has enabled Zambeef to develop the irrigation potential of [its] farms and reduce the weather risk," the group said, adding that its Mpongwe operation "continues to produce yields comparable with any part of the world.

"The Zambeef farms performed well… despite a late start to the rains and power shortages."

Soybean yields had come in "ahead of forecasts", and maize results were expected to be on target".

Although the group's cropping division saw gross profits tumble by 38% to $9.31m for the half year, that was down to the timing of wheat sales.

Egg market squeeze

Zambeef's production-to-retail meat operations saw gross profits fall by 21% to $16.9m, on revenues down 22% at $50.8m, a drop the group attributed to impact of a weakened kwacha, which averaged 61% less against the dollar during the half year.

In kwacha terms, divisional profits rose by 41%, on revenues up 45%, with the group lagging in particular "very strong" demand for eggs, which it has been "unable to meet".

"During the next six months we will increase our layer [hen] numbers from 165,000 to 285,000, which will result in strong growth in the egg operations."

Zambeef said its overall performance meant the group was "confident of meeting expectations" for its full financial year, to the end of September, with chairman Jacob Mwanza saying the company was starting to "emerge from what has been a difficult period".

Troubles have included nerves over debt levels, with the burden of dollar-denominated borrowings swollen by kwacha deprecation, and which has prompted the group to swap dollar borrowings into higher-interest local debt.

Zambeef revealed a more than doubling in interest payments to 60m kwacha during the half year, equivalent to a 29% rise in dollar terms to $5.3m.

Shares rise

The results prompted a rise in Zambeef shares to 8.25p in London, before an ease back to 8.125p in mid-morning deals, a gain of 6.6% on the day.

London broker VSA Capital said that "unlike many farming operations in the region, Zambeef appears to have been less impacted from the widespread drought.

"To us, this demonstrates the importance of irrigation, secured water supplies and again highlights the value of the Mpongwe farm to the entire Zambeef operation."

By Agrimoney.com

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