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Linda Tsarwe
What a depressing reporting season it has been so far following a series of poor financial results by most companies. Given the challenges in the economy, various companies have fared poorly and there is a visible struggle for survival. Earlier this year, Delta, the biggest company on the Zimbabwe Stock Exchange by market capitalisation, released depressed financials for the full year to March 2014, whereby revenue shrunk by 1 percent owing to low aggregate demand.

Delta’s performance gave the market an indication that results for the period ending June 2014 were not going to be any better. As expected, most companies that have so far released their results in the current reporting season displayed a contracted topline and poor margins.

It is against this background that the market was pleased with the performance of Colcom, which recently released its full year to June 2014 results last week.

The group showed a significant turnaround from the dismal performance of 2013. It would be interesting to unpack how Colcom recorded such a success story when the rest of the market seems to wailing in under-performance.

For the full year to June 2014, the Colcom recorded a 10 percent growth in revenue to $66,6 million. This was mainly driven by a 67 percent increase in revenue at Associated Meat Packers (AMP). Operating profit margin increased from 3 percent in 2013 to 10 percent in 2014.

The group incurred abnormal once off write downs of assets and expense provisions in 2013 of approximately $3,9 million. However, even after adjusting for the once off cost, the operating profit margin for 2014 represented a gain from 2013 levels. Low borrowings and a significant positive cashflows resulted in the company achieving net finance income of $269 259 which was an improvement from the interest expense of just above $16 000 recorded in 2013. Cashflow from operations was $9,78 million which is almost treble that of 2013. Profit for the year increased by 219 percent to US$5,2 million.

Such a strong performance had become rare in our market. While others are failing to push sales volumes, Colcom managed to achieve both revenue and volume growth in almost all of their product lines with the exception of Colcom foods that dipped 10 percent in revenue due to discontinuation of some product lines.

This, however did not deter the group from achieving an overall volumes growth of 16 percent. Interestingly, the group’s business is just as affected by low consumer demand in the market, as most companies, yet they still managed to attain a growth in volumes.

This is commendable and credit should be given to management who successfully turned around the business over the past year. During the year 2014, Colcom worked on expanding the branch network of Texas meat stores after the division had proved to be a success.

This has paid off for Colcom as this division was the main driver of revenue for the year. There are plans to open four more branches in the financial year 2015. Expansion exercises such as these have been undertaken without assumption of huge debt, as the group had the internal resources to fund capital expenditure. Debt to equity ratio actually climbed down from 5,4 percent in 2013 to 4,3 percent in 2014.

Furthermore, funding has been availed internally for upgrading machinery at both the factory and at Triple C. Installation of efficient machinery, such as the automatic feeding system at Triple C, has gone a long way in cutting down production costs and therefore boosting margins.

Likewise, upgrades carried out at the factory plant have also been commended for increasing efficiency by reducing the number of heads required to operate the machinery. A retrenchment exercise was carried out last year so as to rationalise staff to the fewer human resource requirement of the new machinery.

All these efforts have yielded fruit and improved profit margins have been recorded across the board. Most manufacturing companies are struggling to make ends meet because of obsolete machinery that can no longer compete with the latest technology.

Old machinery increases the cost of production and as a result local products are usually priced higher than imports. Retooling and machinery upgrades is required to boost both quality and quantity, as well as increase competitiveness of locally manufactured goods. Colcom should be applauded for carrying out a capitalization exercise which has leveraged them to stand their own ground in a market where competition is rife.

Other than just machinery upgrades, Colcom also made a decision to discontinue production of unprofitable products. These include the frozen pies and canned foods. Many companies have most times been found guilty of hanging on to dead wood when it is clear that it has been dragging the performance of the other entities.

Some only make the realisation too late, when value that could have been saved, has already sunk. Capital injected into such entities could have been allocated to more value adding products.

With all this glory, some might argue that Colcom was coming off a low base, given their performance in 2013 in which profit tumbled to its lowest since dollarisation at US$1,6million. Although revenue had grown by 15 percent from prior year, profit margins dropped as business operations were embattled with inefficiencies. However, it has to be acknowledged that in 2014, stern measures were taken which saw improved profit margins and a general improvement in business operations.

Investments made at the factory and at the farm, have paid off and Colcom has plans to pursue more capital investments in the financial year to June 2015. The market seems upbeat about the future of Colcom as seen by the jump in share price by 30 percent a day after the release of their results. In addition, save for 2013, Colcom has reliably paid dividend every single year since dollarisation thereby constantly rewarding shareholders for their committed capital

Colcom is surely poised for a bright future, although their performance will be capped by an underperforming economy.

It is commendable that the company has took a stance to tap into the mass market by introducing the ‘value’ brands which are relatively cheaper than their main lines. Growth going forward has been underpinned on the performance of these products.

However, because they are low value products, profit margins for the group are expected to decline slightly as sales will be skewed towards the mass products.

Regardless, Colcom has positioned itself well and remodelled its product mix to suit the changing environment.

Even in a tough environment like the current, a good business model will always weather the storm and such a resilience always pays off.