Zaffico’s big pay-out

Under IDC company’s profits soar by 67%, pay-out by 35%

ZAFFICO pine wood logs

VICTOR KALALANDA, Ndola

MOUNDS of saw dust dip and rise before my eyes while the noise of woodcutting machines shrieks on, across one side of the once weeds-ridden Kafubu River, as I arrive in Ndola’s central business district.

It’s not a sorry site, but rather one of renewed hope and vigour. This is because, as of February 11, 2020, many Zambians working in this part of the timber industry had started buying and now own shares in the Zambia Forestry and Forest Industries Corporation (ZAFFICO).

ZAFFICO, the country’s largest forestry company that currently establishes, manages and sells exotic roundwood, exists as one of the most profitable state-owned enterprise (SOE) in Zambia.

From the time Government started superintending over it through the relatively new Industrial Development Corporation (IDC), ZAFFICO’s fortunes have undergone an irresistible positive change, with the company’s recent net profit of K229 million having increased from K79.5 million in 2016 to K119.5 in 2018 and K137 million in 2019.

Besides, of the 36 SOEs owned by the IDC, ZAFFICO was the first one to declare dividends of K3 million in 2015, which peaked to K40 million in 2017 before reaching K25.1 million in 2018.

According to the latest financial report, the company’s declared dividends have since increased by 35 percent from K27, 345, 423 in 2019 to K37, 049, 572 in 2020.

Incorporated in September 1982 after the Industrial Plantations division of the Forestry Department was commercialised, ZAFFICO’s core business mandate has been to establish and manage pine and eucalyptus plantations, which ultimately produce timber that is commercially processed and supplied to local and international markets.

Its leap from strength to strength under different strategic plans has become the very benchmark of IDC’s reform agenda, which has entailed setting up performance targets for the productivity of all SOEs in Zambia.

“ZAFFICO is a very critical player in the economy because [of its] business to grow exotic plantations,” says the company’s managing director, Kangwa David Bwalya. “In fact, the Seventh National Development Plan alludes to the importance of ZAFFICO in the economy in general, so we’re happy to be playing that critical role.”

As the umbrella company, IDC’s job is bent on ensuring that ZAFFICO’s strategic investment value is seen in practical terms through an increase in profitability and continued dividend pay-out.

“The idea is really to start returning real value to the shareholders because previously, I think, state-owned enterprises weren’t returning sufficient value to their shareholders, but as ZAFFICO we’re happy that we’re now transforming our business, so that we can return real value to the shareholders, so . . . we’re working very hard to continue creating value,” Bwalya says.

Under ZAFFICO’s 2014 to 2018 strategic plan, as approved by IDC, the company focused on diversification, value addition and plantation expansion.

As accomplished feats under this strategic period, ZAFFICO established a pole treatment plant to add value to its wood and went on to start new plantations in Kawambwa district of Luapula Province and Shiwang’andu district of Muchinga Province, with a view to manage the depletion threat posed to mature pine wood.

The expansion of the hectarage presented its own challenges, as Chota Ngalande, the company’s director of plantations, notes: “We started with Kawambwa, where we moved in and started working with Chief Munkanta. There was resistance from the locals but this time it’s been positive.”

Under its diversification drive, ZAFFICO drew upon its competence in managing large plantation projects to secure agreements to manage Kawambwa Tea and the Cashew Plantation in Western Province.

So far, sales from ZAFFICO’s pole treatment plant—which has an installed capacity of approximately 140, 000 treated poles per year—have increased by 57 per cent in 2020 compared to 2019, with growth expected to increase in coming years.

Having recently created a total of 1,150 hectares of new plantations in Luapula, Muchinga, Northern and North-Western provinces, and having replanted a total of 2,346 hectares of harvested areas of the Copperbelt, ZAFFICO now manages a total of 51,659 hectares of pine, eucalyptus and gmelina, which eventually end up among various customers such as utility, energy and communication companies; farmers, commercial and small scale; wood processing; saw millers; construction companies; and mining companies.

It is therefore clear that the increase in ZAFFICO’s profits and dividends as laid out in the last few years is because the company has been diversifying, adding value and expanding its portfolio using ambitious strategic plans that are answerable to IDC’s key performance indicators.

In its new 2020 to 2024 strategic focus, during which time it seeks improvement in the management of plantations, agroforestry, stakeholders, financials, operations, human capital and infrastructure, to mention but a few, ZAFFICO just proved resilient by ending with a strong balance sheet in a pandemic year.

The highlight for the company is arguably its move to raise new capital and share its future gains with local Zambians by listing on the Lusaka Securities Exchange (LuSE), becoming the third IDC subsidiary to do this after ZCCM-IH and ZANACO in 2002 and 2008 respectively.

This has seen local and individual investors from the timber industry on the Copperbelt and other parts of Zambia co-owning ZAFFICO after buying shares, creating an entire value chain that enhances Government’s industrialisation plan aimed at job creation and poverty reduction, including wealth creation.

“85 per cent of our members have bought shares from ZAFFICO,” says Wallace Nyama, secretary general of the Copperbelt Saw Millers and Timber Growers Association (COSTIG), which, together with the Zambia National Association for Saw Millers, have a combined total of over 1,200 members.

Following the February 2020 listing, ZAFFICO shareholders have increased from two to 1,136, which represents a 37 per cent shareholding held by institutional investors, the general public and ZAFFICO employees, with the remaining 63 per cent held by Government through IDC.

As the forestry company continues to record sound economic performance under IDC, it will lead to a greater value chain for all Zambians and enhance its shareholder value, with a bigger dividend pay-out year after year.