Half year revenues to 31 March 2019, for Reunert 100% owned subsidiary and LuSE listed Metal Fabricators of Zambia – ZAMEFA (ISIN: ZM0000000243), rose 20.7% to K703.8 million from K582.9 million. This is reflected in the company’s H1:19 results published on the Zambian bourse website. ZAMEFA’s sales volumes widened 9% supported by the rising demand for copper products globally and a stronger dollar which helped boost the listed entities bottom line as export proceeds are denominated in dollars.
Operating income (H1:19) rose 28.2% to K18.2 million compared to K14.2 million as finance costs ballooned 25% exacerbated by funding needs which rose on account of slow settlement of government and quasi government debt. These factors compounded with delayed settlement of draw back claims and Value Added Tax – VAT refunds have suppressed operating activity of the metal fabricator.
BUSINESS COMMENTARY
Despite having immense potential in the metal fabrication space, ZAMEFA has continued to be weighed by economic challenges manifesting in ballooning debtors levels of sovereign nature. This aligns with the uptick in government arrears stock as reported by the MinFin. The adverse effect has been a liquidity gap forcing the entity to resort to credit facilities in an interest rate rising environment thus fueling a widening in the company’s finance costs significantly, eroding potential profitability margins. The fabrication space has lately seen new entrants such as Neelkanth cables that have ramped up capital investments to tap into the curve early enough.
Given the currency and interest rates risks forecast this year, the company cash flows remain exposed significantly. Efforts by the authorities to dismantle domestic arrears will set the tone for improved liquidity and thus cushion rising finance costs more effectively.