When the Meat Corporation of Namibia’s top brass meet in Grootfontein this weekend, the elephant in the room will be the amount of at least N$5 million the parastatal is losing a week.
Meatco’s annual general meeting kicks off today.
Their losses are contained in a forensic report by Ombu Capital, a firm owned by former Standard Bank Namibia CEO Vetumbuavi Mungunda.
The report is dated 22 March 2023. It documents a seven-months process of analysis and sector-wide consultation, and recommends what the authors view as a viable business model for Meatco’s long-term sustainability.
“Meatco is currently incurring monthly losses exceeding N$20 million per month, which must be stemmed before these place Meatco’s operational existence and the livestock sector at risk, a sector which sustains over 60% of Namibia’s livelihoods,” Mungunda says in the report.
At the time of its compilation, Meatco’s liabilities exceeded its assets by N$133.2 million.
“There is a presumption of reckless trading when conducting business under these circumstances,” he states.
According to the report, Meatco is at the brink of existential risk.
It was discovered that the company also operates in a highly secretive world.
“We have been refused access to the Meatco board’s meeting packs and minutes, as well as the meeting packs and minutes for the executive committee meetings. This highly unusual act from Meatco and the lack of transparency is concerning,” Mungunda emphasised.
Meatco has experienced shrinking gross profit margins, which, combined with reduced throughput, has resulted in losses since 2018.
These losses increased significantly to N$119 million in 2021, N$205 million in 2022, and an estimated N$196 million in 2023.
However, in a press statement highlighting its financials yesterday, Meatco boasted about making a profit.
“Despite low throughput and the decline in EURO/NAD exchange rate experienced in the reporting period, Meatco increased its revenue by 15% (from N$752 million to N$865 million) and a gross profit by 950% (from N$2.8million to N$24million).”
Meatco said “robust efforts were put in place during the current reporting term to turn the business towards its vision and realising its strategic objectives. The success of Meatco depends on optimal throughput, operational efficiency and efforts to maximise market returns.
“Throughput remained a protracted challenge for Meatco over the past three years, especially after the devastating drought in 2019/20. Equally so, the outbreak of the novel coronavirus (Covid-19) in 2019 negatively influenced the demand of our premium products and market realisation”.
The company said “as a result, Meatco sold 590 tonnes more beef and increased its revenue by N$113 million, compared to the prior year. For the period under review, Meatco injected a total value of N$1 billion to various stakeholders”.
This year, it is forecast that Meatco could incur losses amounting to N$265 million.
Losses incurred by the entity over the last six years between 2018 to 2023 amount to N$636 million.
“These losses would grow to N$901 million when the forecasted losses for the coming year (year to January 2024) of N$265 million are included. This is compounded by an inability to reduce the relative fixed overheads if neither throughput nor profitable pricing are realised,” Mungunda continues in the damning autopsy.
According to the seasoned banker, Meatco’s poor financial performance is rooted in operational inefficiencies.
For him, the company needs a continuous throughput of animals for slaughter to be profitable.
“Meatco was currently slaughtering below 2 000 animals per month between August 2022 and December 2022, and below 1 000 between January 2023 to February 2023,” he found.
These numbers are a far cry from the 5 800 animals Meatco needs to slaughter per month to achieve organisational break-even.
The decline in market share is, therefore, a steady trend outside of the peaks in years of drought.
Interestingly, while Meatco was dwindling into obscurity over the last four years as far as its performance is concerned, competitor Beefcor saw a sharp increase in its share of the total animals marketed, increasing from 1% in 2020 to 8% in 2022.
During the same period, Meatco has seen a steady decrease from 33% in 2011, 25% in 2020 to 15% in 2022, the report shows.
Meatco’s share of the total animals slaughtered at export abattoirs has reduced from over 94% in 2011, a high of 97% in 2016 to 61% in 2022, and 55% in 2023.
“During the second half of 2022, Beefcor slaughtered more animals than Meatco at 19 466, compared to 17 221 for Meatco. During January 2023, Beefcor slaughtered 3 157 animals compared to less than 700 for Meatco,” reads another section of the report.
What is more, Meatco’s inability to pay producers on time has further negatively impacted on its ability to secure cattle.
Additionally, their performance since 2010 shows that its market share reduced from a high of 48% in 2015 to below 15% in 2023, says Mungunda.
“Prolonged periods of drought experienced between 2015 and 2020 impacted the overall beef value chain, and meant higher slaughter numbers for export abattoirs,” the report further states.
Hope
However, it is not all doom and gloom for the ailing parastatal.
“Meatco can again become a key player in the Namibian beef industry if it is structured in a way to provide support to the consolidation of the industry, and where it pays and achieves the best possible prices to the benefit of its stakeholders,” he observes.
Mungunda proposes a dose of prescription that could turn around their fortunes.
“A recommendation is made here to implement a process of helping to unify the sector, and bring about cohesion through Meatco. This will help the country to consolidate the shrinking throughput at a national level, as well as help lessen the fragmentation in the sector.
“Such a model should help to introduce new technical expertise, management and leadership experiences as well as new routes to market for Meatco that strengthen its competitiveness and ensure its commercial sustainability,” he advances.
Dose
The government has since been advised to consider setting up a new entity, wherein private investors and farmers will have direct shareholding.
The new entity must be able to realistically improve throughput of animals at Meatco’s operations, which means it must address the issue of producer trust; provide the government, as the current de facto owner, sufficient peace of mind to provide capital support one more time – this time to give Meatco a stable platform for restructuring; provide a roadmap to a sector governance model that would address both commercial and social public policy objectives; and ensure that the existing markets are protected, and that there is drive and capacity to unlock new markets.
“The structure, therefore, reflects a business model that can deal with both commercial and public policy objectives. It should be noted that the structure is not prescriptive, especially regarding shareholding percentages. The final shareholding percentages will only be finalised following engagements with potential partners and once negotiations commence,” Mungunda states. – emumbuu@nepc.com.na