Luse

COMPANY PROFILE

2014

Lusaka

Stock Exchange

20 years and counting for the LuSE

company profile

20 years and counting for the LuSE Editorial: Joe Forshaw Production: Ajuanne Payne

The Lusaka Stock Exchange is 20 years old this year. After celebrations in February, the focus quickly turned back to the expansion and development of the exchange which is currently going through a demutualisation process. CEO, Brian Tembo talks to IndustrySA to explain more…

Sub-Saharan Africa is becoming one of the go to destinations for investors, both local and international. Commercial and industrial success in the region has inspired impressive predictions for growth with the IMF stating that the region’s economy could grow by as much as 6.1% in 2014 compared to just 1% in the Eurozone.

Clearly, the developing nations that make up sub-Saharan Africa will be vital in the growth of the continent as a whole.

One of those nations, Zambia, was found celebrating recently as its principal stock exchange – the Lusaka Stock Exchange (LuSE) – turned 20 years old.

The exchange has played a pivotal role in the growth of the country, allowing businesses that were previously state owned entities to move into the private sector and to raise much needed capital for expansion.

LuSE CEO, Brian Tembo tells IndustrySA more about the history of the exchange and how it came into being back in ’94.

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“LuSE was established on 21st February 1994,” he says.

“There was a gap that was created by governments exit from business. Because of this there was a need for a platform where the private sector, which was expected to drive economic activity, would go to raise longer term capital.

“The exchange was central in the privatisation process and also in the exit route that the government wanted to utilise to exit from the businesses it held. We as an exchange performed that role, facilitating the divestiture of government interests. There was also a need to empower citizens through share ownership which was a relatively new thing at the time so clearly the exchange had to perform that role of allowing the government as it exited to offer those shares to citizens at a discount.

“There was also a need to attract foreign investment and that was also possible through the exchange.

“Companies that had become private could now grow

Lusaka Stock Exchange

© General Motors -1916 Chevrolet 490

through the exchange. That was the initial push for the establishment of the exchange.

“Since then we have had 21 companies listed and out of those 21 about 11 were as a result of that privatisation process.”

20 YEARS AND COUNTING The 20th anniversary of the exchange was marked with a week of activity and celebrations at the headquarters in Cairo Road, Lusaka. Brokers were present in malls around Lusaka, introducing people to the LuSE and educating the business community on the key theme of the week – ‘going public’.

“On the day and in the week leading up to February 21st, we had a series of events,” says Tembo. “We called it Capital Markets Week and it was launched by the Minister of Finance.

Brokers were able to offer free account opening services to the public. We held a Peer Forum where companies who have listed on the exchange and grown through the exchange

could explain to their peers what their experiences have been on the exchange.

“In mid-April there will be a compliance conference as we are looking to re-sensitise the market of the rules. We benchmark our rules to the South African exchange, the JSE, and people from the JSE will come in to hold a workshop for companies that intend to list so that they understand what the requirements are.

“We are also planning a huge conference, a capital market conference, to share with people where we are coming from, where we are and where we would like to be.”

The exchange has come a very long way since its inception and its exceptional growth looks set to continue with government encouraging public listing. Tembo explains that he expects more companies to list throughout 2014.

“We’ve just concluded a $20 million rights offer for continues on page 70...

APR 14 PAGE 3

Imagine

LUSAKA without us

Imagine you woke up one morning and your bedroom walls had disappeared.

Imagine the very foundations of your house were gone and you were standing on the bare earth. Imagine looking around and seeing a barren landscape before you.

Imagine your life without Lafarge. www.lafarge.co.zm PAGE 4 APR 14

Building better cities™

LAFARGE ZAMBIA PAYS SHAREHOLDERS HIGH DIVIDEND ON THE BACK OF STRONG 2013 FINANCIAL RESULTS Turnover rose 14.5 percent, to ZMW 1,132 million compared to 2012 for Lafarge Zambia Plc, Zambia’s leading producer of building materials and construction solutions provider, on account of increased demand in the domestic and export markets. The company recorded strong performance in cement production due to improved industrial performance at both the Ndola and Chilanga Plants resulting in total sales volumes for the year of 1,1 75,000 tonnes, up 7% compared to prior year.

At the Company’s Annual General Meeting held at Taj Pamodzi Hotel on 31st March 2013, members approved a final dividend of ZMW 2 per share, in addition to the ZMW 1.5 per share interim dividend already paid. This represented a dividend payout ratio of 207% up from 70% in the prior year.

The Directors were also pleased with the Company’s share price which had risen from ZMW 8 at the beginning of the year to ZMW 15.75 per share at the end of 2013 and was at ZMW 22 per share at the time of the meeting.

The Company revealed that profit after tax at the end of the financial year rose to K338 million while profit before tax was ZMW 510 million, compared to ZMW 435 million in 2012.

Lafarge Zambia CEO, Emmanuel RIGAUX stated: “The second half of the year saw a sharp improvement in operational and industrial results both at our Ndola and Chilanga Plants. Lafarge Zambia also implemented targeted cost reductions as well as logistical optimizations which enabled us to improve our operating margins.

Looking at 2014 we expect a continuous strong environment driven by infrastructure and mining projects both in Zambia and in the DRC. Our absolute priority this year is to improve our level of customer service through innovation, refocus of our sales and customer departments and logistical break-through solutions. As previously referred to by Lafarge Group, Lafarge Zambia is planning to double its capacity both in Ndola and in Chilanga through debottlenecking and construction of a new line. This will enable us to remain the market leader and preferred supplier of construction solutions in Zambia and the DRC’’.

company profile ...continued from page 67 one of the energy sector company listed on the exchange, CEC (Copperbelt Energy Corporation), which has branched out and invested in West Africa. We are getting more Zambian companies that are able to expand through the exchange and take advantage of opportunities in other parts of Africa which is fantastic I think,” he says.

“We set out to play a pivotal role in the development of the economy. What has changed is that now the public are more aware about share investments and that awareness did not exist before. One thing that is worth noting is that despite the change in government administration, the support towards the exchange and what it stands for has continuously grown. Just recently, the Minister of Finance was at a public event where he actually announced his and the government’s desire for companies to list.

“If you want to share your wealth and success by spreading your shareholding then you must list. It’s good that we’ve had finance banks step up and say that they want to list and if they do so this year we are looking at quite a number of new listings.

“We anticipate at least four listings this year. We see 2014 as not only being our anniversary year but a year of rekindling the life of the exchange. We are also launching a platform for SMEs so that smaller growth companies can have easier access to the exchange to grow.”

As for the nature of companies listing, Tembo suggests that

“We are also launching a platform for SMEs so that smaller growth companies can have easier access to the exchange to grow” technology businesses will play an increasingly important role with two insurance based companies expected to list and other financial services sector organisations and telecoms companies also giving off good signs.

When it comes to investors, Tembo says that the exchange is looking to encourage both foreign and local investors to get involved because “we need diversity and we also need to put the country on the map so we can attract more and more investment.”

The exchange itself will undergo changes as it grows and developing a wider range of products and services is inevitable.

“As an exchange we want to look at multi asset offering. We want to broaden the product offering of the exchange. We also want to ensure that we are driven by local growth companies

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and play a role in economic development,” explains Tembo.

CHANGE IN STRUCTURE Back in 2013, strong rumours emerged that the LuSE was considering demutualisation. These were confirmed in November 2013 after consultants were bought in to manage the demutualisation process in which the LuSE will issue stock to investors other than its members.

“For us, demutualising is not only about changing the shareholding strategy but more so about aligning the exchange in a manner that it can better perform its commercial role as well as its regulatory public benefit role. Embarking on this process has been very positively received because it signifies the exchange stepping up to lead by example in terms of corporate governance,” says Tembo.

“The process only started in November. We have appointed our consultants and the initial phase was to identify the legal changes that will have to happen and to engage with our key stakeholders on the kind of changes that will happen as a result of demutualisation and we are also engaging with the government and wider market so that everyone understands why we are doing this.

“So far most of the interest groups have been engaged. We are in the process of engaging with the listed companies and we are set to release a report which will be looked at the entire community.

“We expect by the end of the year that certain changes will have taken place including separation of ownership from brokerage and some changes in the rules to reflect that,” he adds.

What will be the immediate impact from the demutualisation process? “It will also allow us to raise funds and one of the outputs after this would have to be broadening the staff complement. This is a very unique business and requires a lot of training. A lot of the training can happen locally but we will also look to collaborate with our partners in the JSE and the NSE so that our people have a vast range of experience. We would also consider sending people off the continent, to the US or UK, so that they have strong exposure to the business,” explains Tembo.

FUTURE OUTLOOK The Zambian economy has been buoyant in recent years despite the slowdown in the global economy. This is mainly due to the success of the mining, agriculture and construction industries and Tembo says that a successful economy is only beneficial for the exchange.

“We are currently experiencing a construction boom, there are a number of new districts which have been set up and all of these districts require services so all of this is working positively to stimulate the local business space,” he Grain says. Silo

Lusaka Stock Exchange

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company profile “The slowdown had an indirect affect. Of course, the currency exchange rate was affected and slower economic activity stifles businesses and stops them doing what they are trying to do. When that happens, you’ll find that fewer companies turn to the exchange to raise money for expansion.

“However; as for the outlook, especially after the last rating where Fitch gave us a B, we are absolutely stable. The government is on the verge of issuing a $1 billion bond to combat the deficit and finance some of the infrastructure projects and that will provide a boost for the whole economy.”

In 2013, the LuSE’s all-share index rose by 42% making it Africa’s fourth-best performer. As the region’s economy continues to grow and more busiensses think about listing, it looks like nothing but good times for the exchange in the future.

ZAMBIA AND SA One of the key factors in the growth of the LuSE has been its robust relationship with the rest of the African exchanges and the JSE in particular.

“The JSE is like our big brother,” says Tembo. “In the SADC region, exchanges use the JSE as a benchmark for standards. We aspire to achieve what the JSE has achieved.

We get technical support from the JSE and whenever we are looking to advance our set-up, we have a constant exchange with them. The JSE plays a very important role in helping our markets grow; they are a very important partner.”

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He goes on to state that he would like to see an increase in the business relationships between the two countries saying that cross listing represents a good opportunity for South African companies.

“What I would like to see is for South African companies who are setting up in Zambia and are listed on the JSE to consider cross listing. Also, I would like to see a lot more collaboration between SA and Zambian businesses, away from the exchanges.”

Another key factor in the development of the exchange has been its close relationship with the government of Zambia. As mentioned above, even after changes in administration, the government has been supportive of the exchange.

“We work in partnership with the Zambian government. If you look at how the government has encouraged investment in the exchange, you’ll find that we have had some tax incentives and we also support government policies through the exchange.

“It really is a partnership. We are always looking to what government thinking is and what their plans are. In the past we have received grants for market development and ensuring our regulatory environment is up to scratch,” says Tembo.

With the backing of the government and a potentially growing number of listed companies, it seems as though the exchange is well on its way to meeting its mission statement, as a primary market to ‘become the capital

Williams Hunt

raising mechanism of choice in Zambia through the provision of an efficient, transparent and cost effective service to issuers.’

Tembo reiterates that expansion is one of the targets for the LuSE saying: “The stock exchange wants to expand its asset classes away from the mainstream equities and bonds

to also look at commodities so I see the future breeding one exchange in Zambia that has multi-assets.”

If this sort of expansion can be achieved then who would bet against celebrations being planned ten and 20 years down the line when the LuSE marks its 30th and 40th anniversaries?

.

Meet Brian Tembo “My life with the exchange started when I was an undergraduate. During the privatisation period, people had mixed feelings as there were many who liked being looked after by the state but the government was saying that they didn’t want to be involved in business.

“I did a study that looked at the impact and the initial results of privatisation and floatation and of course I recommended things that I thought could be done to make things better and I ended up implementing those things through my various capacities. I worked for the privatisation agency which dealt with those companies which changed for listing on the exchange, I then found myself at the exchange helping to develop the business, I left the exchange to develop the Zambian Agricultural Commodities Exchange and here I am today pushing the board and shareholders vision of where the exchange should go.

“It’s been a labour of love. I’ve found myself in a privileged position where I can push my ideas on how a structured market of exchanges can help develop Zambia.”

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