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What to Look Out for in the ZCCM-IH 2019 Annual Report When its ublished

FinanceZCCM-Investment Holdings Plc

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When ZCCM IH announced that it forecast that the Earnings Per Share (“EPS”) for the Group and Company financial year ended 31 March 2019 were expected to be approximately 47% and 125% respectively, lower than the financial year ended 31 March 2018, Financial Insight predicted that Investors in the company would be keen to know which investments were likely to be the cause in the erosion in value.

Although the latest SENS announcement published on 13th December 2019 advises shareholders that investee company’s underperformance by way of impairment, it does not mention which companies these are.

CEO Mabvuto Chipata

If an investor were to follow the bread crumbs, the obvious place to start would be the 2018 annual report which was released at the Annual General Meeting in January 2019 by the former CEO Dr. Pius Kasolo who was subsequently replaced by the Chief Investment Officer Mabvuto Chipata.

Mr. Chipata, who was then responsible for all the 17 investee companies knows that the group has struggled to prop up Ndola Lime’s performance. According to the 2018 annual report, the Ndola Lime LC investment reported total revenues for the financial year ended 31st March 2018 of K60.1 million and realized a loss after tax of K190 million. The reason for this weak performance was below budget sales figures, huge financial costs and penalties on overdue statutory obligations.

Furthermore, the plant suffered a major setback which Mr. Chipata lamented about when he spoke to the founder of Financial Insight in January 2019 in an exclusive interview when he was asked regarding the 21st September 2017 Vertical Kiln 2 (VK2) incident where it was engulfed in flames. This particular incident damaged several components of the kiln, rendering it dysfunctional. The setback was immense considering VK1 had just undergone refurbishments to its refractory bricks but could not be fired up due to NLC’s lack of working capital which inevitability led to the grounding of production.

Another struggling asset is the Investrust Bank Plc investment. The last annual report indicated that the Bank had recorded a 19.9% decrease in net interest income to K48.91 million during the year ended 31st December 2017 compared to K40.82 million in 2016. Hereafter ZCCM-IH increased its shareholding in Investrust from 45.4% to 71.4% through mandatory offer that commenced on 9th April 2018 and closed on 30th April 2018. With a commanding position in the boardroom, the 2019 performance will be interesting to see when ZCCM IH announces the investee companies’ individual performance.

A glitzy investment that will have investors pondering over is the Kariba Minerals Limited investment who reported back to back net losses for 2018 and 2017 of K17.18 million and K20.64 million respectively. Investors will remember that in February 2018 in Jaipur, India, KML held an auction at which a total of 3.35 tonnes of high-grade amethyst valued at US$270,000 was sold. For this investment, the introduction of new grading levels at auctions appears to be a source of additional value creation as the appetite for varying grades of the rare gems increases.

Its investment in the energy sector will also be under scrutiny. ZCCM IH’s associate company, CEC Africa Investment’s Limited suffered a net loss for the year ended 31 December 2017 of K2,578.5 million and has liabilities that exceed total assets by K3.171.58 raising the issue of going concern. This underperformance has been largely attributed to the wrath of the Naira (macroeconomic environment) and electricity regulation still work in progress.

Chairman E Silwamba SC.

Insiders indicate that the Annual General Meeting for the investment company is scheduled for Q1 2020 which will give investors in the company an opportunity to probe the Eric Suwilanji Silwamba, SC led board.

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Source: Financial Insight

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