In the first 6 months of their 2019 financial year, Zambia Sugar reported an increase of 14% in total revenue compared to the previous period ending February (half way mark of the ZS financial year) thanks to improved irrigation and pest control.
The K1.219 billion total revenue recorded at half year was attributed to improved cane supply and higher sales demand according to the company when it published its half year performance on SENS.
“Cane supply and quality have been trending above that of the past three years mainly due to improved bulk water supply and infield irrigation, better aphid and black maize beetle control measures as well as an increased area due to better farming practices and improved field specific nutrition program”, read a statement issued on SENS by Mwansa Mutimushi, Company Secretary, on 7th June 2019 on the Lusaka Securities Website. “This recovery resulted in Sugar production for the 2018/19 farming season ending at 400 000 tons compared to 353 000 tons in the prior season”.
With the threat of inflation going above the Central Bank’s targeted upper bound of 8%, the management team at Zambia Sugar will be pleased with this performance albeit cautious going forward as they will look at protecting their market share. “The domestic market performance has continued on the positive trajectory largely driven by continued optimisation of route to consumer to enhance market penetration and availability, optimisation of product portfolio to ensure needs of all consumer segments are met”, said the company through the published statement. Many manufacturing companies in Zambia such as Zambeef and Lafarge have optimised their strategies towards their route to customers. Zambia Sugar has adopted an analogous approach of protecting and increasing sales in a highly competitive consumable sugar market.
On the export side, global sugar prices continue to hurt the company in its attempt to earn greenback. With fluctuating local currency, this is seen as a means of hedging and ensuring they preserve their ability to service the loans that are non-Kwacha based. The company pointed out this concern by stating “despite growth being recorded in Regional market sales, performance continues to be impacted by the surplus world sugar supply which has resulted significant volumes of world market sugar finding its way into the region affecting demand and putting pressure on margins”.
Inwardly, the company continues with its corporate strategy of prudent cost management (also known as cost control). “Operating profit for the 6-month period was K190 million compared to the K150 million operating profit in the comparative period. This is mainly driven by the higher net revenue, increased production levels and strict cost control measures in place”.
With the heavy debt load, servicing this obligations presents a risk for the company hence its decision not to pay a dividend which will come as another disappointment to shareholders as they wait patiently for the dividend drought to end. The company stated that “finance costs, increased from K126 million in the 6 months to February 2018, to K140 million in the reported period, the result of increased Treasury bill auction rates”.
Investors in Zambia Sugar will be please as “headline earnings for the 6-month period ended February 2019 was K30 million, 68% above the comparative period at K18 million.” However, this is yet to translated into much needed capital gains in the LuSE listed security.
Source: FiZambia