Zambeef Makes First Half 2014 Loss

Zambeef took a big hit in the first half of financial year 2014 coming in with an after-tax loss of K38.3m (H1 profit of K34.8m in 2013). Revenues came in at K789.5m, down 2% year-over year:

Exchange losses also hammered Zambeef's bottom-line line as they came in at K29.5m, up a whopping 94% year-over-year. It's no secret that the Kwacha depreciated significantly against the dollar from Q4 2013 till May 2014, bottoming-out at a shade over K7 per US$ (has rallied 10% this month). The company had exposure to $55.6m of Forex liabilities to 3 institutions:

In their 2013 annual report, Zambeef did a sensitivity analysis that highlighted the potential impact a +/-10% change in the Kwacha/US$ exchange rate would have on their earnings - it was material either way. The Kwacha had lost more than 10% before its recent comeback in June 2014. As if this was not enough, finance costs also increased by 24% year-over-year to K22.5m.

There weren't a lot of positives in half 1 for Zambeef, however, export revenues increased by 27.8% to K123.4m - accounting for 15.6% of revenues. They also had positive performance from cropping, milk/dairy and West Africa segments.

A stronger Kwacha will help Zambeef pare some of the exchange losses should the recent rally continue. The bottom-line will continue to take hits from increased fuel prices in April 2014 and increased electricity tariffs by the Energy Regulation Board (which will also be squeezing consumers pockets). The 2% dip in revenues could easily turn into 10% in this environment - can Zambeef improve top-line growth by the end of the financial year despite the challenges they face? We'll be watching.