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We are proud to bring our readers our latest portal that will make it easier for them get the news on how Zambian companies continue to create value in the Zambian economy. We believe the story is not about how much the company started with at inception or how much its founders exited with, no, our concern is how these companies continue to create value on a day to day basis. The story in between. We declare, from this day forth to be committed to this ideology. Thank you for your readership and we hope you enjoy this journey with us as much as we do.

MPC - January 2017

Central Banks are at the heart of any economy. Their importance goes back a long time and their relevance today remains crucial in steering any economy forward. It is no wonder that on 20^th and 21^st of January, all eyes were on the bank of Zambia governor Denny Kalyalya and his team as they poured through critical economic data in order to announce to the country there position on how they saw the economy moving forward.

In their statement “The bank of Zamba will closely monitor domestic and external developments and stands ready to take appropriate monetary policy measures on price and financial system stability that support the diversification and growth of the economy”, TFHZPC notes that the committee understands its position in the Zambian economy jigsaw puzzle. Armed with economic data, their decision was to reduce the policy rate 150 basis points (1.5%) to 14%, the statutory reserve ratio by 250 basis points (2.5%) to 15.5%, and overnight lending by 400 basis points to 20%. These tri policy rates are the foundation of how the financial markets play the money markets in Zambia.

Banks will soon be signaling south ward movement on interest rates. The easing is quite substantial for OLF signaling the central banks continued easing of the liquidity in the market. The single digit inflation was a result of an appreciating Kwacha against the green back which has held steady in the K9.7 to K10 range for months.

For industry, premier companies will be looking keenly at the signals from the banks in terms of making decisions regarding their capital structures. For manufacturing, the allure of cheaper money for property, plant and equipment will hard to resist as they prop up production for 2017. Furthermore, with a stable exchange rate, sales projections will be easier to project as well as cost of doing business. Inadvertently, this will affect the decisions on working capital for the year. However, we advise caution as BOZ indicates that there is a current deficit which has persisted. This is where the bank keeps our dollar cover which at the moment stands at 3.3 months import worth. Therefore, premier companies are advised to hedge carefully.

A stable single digit inflation rate means premier companies in the fast consumable goods arena will be cautious not to over price their products. In a stable equilibrium, competitive forces thrive therefore, they must anticipate new entrants coming into their market. Furthermore, low inflation also has a impact on switching costs. What this means is that with new entrants on the market, there will be pressure on incumbents to hold on to customers who will see price friendly products.

For investors looking at premier companies on the stock exchange, BOZ indicates that risk free investments (T-Bills) weighted average yield rate is at 23.6%. Investors therefore will be looking at return on equity north of this region to justify as stake in a premier company. However, this is an optimistic outlook considering that emerging market growth is expected to be in the region of 4.5% (global stands at 3.1%). Therefore, the long game is the most desired approach when considering making an investment. 

The Anatomy of The Annual Report

It’s that time of the year again. It’s the season for company secretaries to prepare the documentation for the proverbial Annual General Meeting (AGM). Printers and scanners will be working overtime. Note to self..open shop that sells ink cartridges. Needless to say this is an important day on a premier company’s calendar. One worth notable mention.

TFHZPC pays close attention to what comes out of this event. Of note, is the annual report. This is a fully loaded document that is often self-styled by the authors but contains critical information about the previous year’s performance and what the company believes is the outlook for the coming year. 

The Chairman and Chief Executive Officer’s statements are what set the tone in understanding the sort of stewardship the premier company has. They will discuss the highs and lows of doing business in that fiscal year. They will mention what they are extremely proud of and what set them apart from competitors. Some might even paint a rosy picture amidst dismal performance. However, their comments are to be taken very seriously as this is an indicator of whether or not the management is astute enough grow value.

Reading along there will be details of the internal environment of company. Short of a brief internal analysis, some vital stats are provided such as the shareholding or any movements that may have occurred during the year. There will be mention of how the staff levels grew or shrunk. Furthermore, the various board committees may be listed and their mandate discussed. For a company that had positive earnings, a note on the amount dividend can also be mentioned here which certainly wets the appetite of any investor.

One aspect of the AR often ignore is the corporate governance section. We have discussed the importance of this in previous blogs and how it forms the foundation how the company conducts business. There will be bold statements such as fairness, accountability, integrity, transparency and independence. Whichever combination of words used to describe how they intend to conduct business must be taken seriously.

The AR follows up with a statement from the company’s chosen auditors who after months of reviewing the company’s internal and external transactions produce our most coveted financial statements. These exciting statements show the keen eye how and what money the company brought in during the year in review. In addition, it shows how money was spent and whether or not it finally ended up growing value (equity).

So we at TFHZPC will be paying close attention to the output that will come of these AGMs and it is our intention to bring you that most vital of information that is relevant to the discerning stakeholder.