As I swift through the sweet Managing Director’s statement
in ZamSugar’s 2016 Annual Report, I cannot help but feel excited for newly
appointed Rebecca Katowa. She takes over a sweet company that is literally
sweetening value from Mazabuka…much to the delight of shareholders.
The last two financial years faced the wrath of falling commodity
prices in the European Union which hurt the Zambian Illovo Sugar branch.
However, in the midst of falling EU prices, the regional and yes Zambian sales
were up 60% and 6% respectively. This came on the back of the company
refocusing its energy on its resources and capabilities (this is key for a
company that seeks product differentiation over pricing). They have invested in
product alignment that is set to encourage local cane growers take advantage of
the company’s resources. This is set to grow the company’s output in the medium
to long term.
Despite marco enviroment difficulties, the company was able
to sweeten its revenue by 7% and earnings were up by 14%. What is fantastic for
investors is that their plowback ratio is over 40% (the company choses to
retain part of its profits to reinvest in the company) leading to a growth in
equity. Literally sweetening value. Cost management has also been reflected by
a marginal increase in cost of sale by only 4%. The return on capital employed
is 17% whilst return on equity is 15% for 2015. This may be a source of concern
as their gearing is over 90%. This is on the back of reinvestments that are
being made to sure up their factory. Worrying for the short term but shows that
they mean business by investing in their core business. Long term, this will
pay off.
Although Rebecca has noted improvements in cost reduction
and continuous improvement programs, the efficiency of the sugar company should
be on her top 10 list of items to tackle. Their working capital cycle went up
from 44 to 61 days between 2014 and 2015. Taking longer to realized cash can
become problematic for any business. However, she knows that she is getting the
best out of her workforce in terms of labour productivities which is up by 40%.
For the investor, this company is perfectly poised in a high
risk high return.
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