• Despite a strong market for copper cable, ZAMEFA swung from a ZMW 59.2 million profit in H1 2025 to a net loss in H1 2026 driven by a 21% Kwacha appreciation  against  US dollar
• The combination of global copper prices raising USD input costs and the strengthening Kwacha lowering the local-currency selling price compressed ZAMEFA's gross profit margin from 7.3% down to a razor-thin 2.8%
• Accumulated losses expanded to ZMW 61.908 million, and a ZMW 365 million shareholder equity loan is the sole instrument keeping the strategic manufacturer technically solvent and operating as a going concern

Harare- Metal Fabricators of Zambia PLC, the Lusaka Securities Exchange-listed copper cable and wire manufacturer, reported a loss before income tax of ZMW 43.775 million (USD 2.459 million) for the six months ended 31 March 2026, swinging from a profit of ZMW 75.692 million (USD 4.252 million) in the comparable period of 2025 according to the latest financial results.

 The company recorded a net loss for the period of ZMW 33.307 million (USD 1.871 million) against a profit of ZMW 59.222 million (USD 3.327 million) in H1 2025. Revenue declined 18.3% to ZMW 1.398 billion (USD 78.6 million) from ZMW 1.711 billion (USD 96.1 million), while gross profit collapsed 69% to ZMW 38.528 million (USD 2.165 million) from ZMW 124.416 million (USD 6.990 million), compressing the gross margin to 2.8% from 7.3%.

 As a result, loss per share was ZMW 1.23 (USD 0.069) against earnings per share of ZMW 2.19 (USD 0.123) in H1 2025, and no dividend has been declared.

 ZAMEFA has not been undone by poor management, a failing product, or a shrinking market for copper cable, it has been undone by the Zambian kwacha, the world's best-performing currency in early 2026, which strengthened 21% against the US dollar during the period under review.

 As a company that generates most of its revenue in US dollars, holds USD-denominated assets on its balance sheet, and operates in a manufacturing sector where raw material input costs are set by global commodity markets in USD terms, a 21% appreciation of the local currency in a single six-month period is an existential financial event, and the H1 2026 income statement is its ledger.

To understand ZAMEFA's H1 2026 results, it is necessary to first understand what the Zambian kwacha did between October 2025 and March 2026. The kwacha entered 2026 on a historic run. By early January 2026, it had gained almost 10% against the US dollar in a single month, earning the distinction of being the world's best-performing currency tracked by Bloomberg. By early February 2026, the exchange rate had pushed below ZMW 19 to the dollar, levels not seen since July 2023. By April 2026, the kwacha was trading at ZMW 19.02 to the dollar, down 32.91% over the prior twelve months, meaning the dollar had lost nearly a third of its kwacha value in a year.

Two primary forces drove the kwacha's appreciation. The first was the Bank of Zambia's directive of 26 December 2025, which tightened the use of foreign currency in domestic transactions. The directive triggered immediate market behaviour changes: dollar holders rushed to sell, corporates converted foreign exchange reserves into kwacha to meet tax obligations, and importers brought forward local currency demand. The second force was fundamental: record copper prices boosted Zambia's export receipts substantially. Zambia is one of the world's largest copper producers, and when the metal trades at or near record levels on the London Metal Exchange, the country's export earnings surge, strengthening the current account and putting upward pressure on the currency.

For Zambia as a sovereign, a stronger kwacha is broadly positive. Its USD-denominated public debt costs less to service, imported goods become cheaper, and inflation moderates. For ZAMEFA, an exporter of copper cables priced in US dollars, the same kwacha appreciation is the mechanism of a ZMW 92.5 million (USD 5.197 million) swing from profit to loss.

 ZAMEFA Balance Sheet: 31 March 2026 vs 31 March 2025

Dissecting the Loss: Three Mechanisms, One Cause

 ZAMEFA's directors were explicit in their analysis, the 21% appreciation of the Zambian kwacha against the USD had a significant adverse impact on operating profit across three interconnected channels. The first and most direct was revenue translation. Most of the company's revenue is generated in US dollars. A stronger kwacha means that each dollar of cable sold translates into fewer kwacha when the income is reported. Revenue fell ZMW 312.9 million (USD 17.578 million) year on year, and the kwacha effect accounts for a substantial portion of that decline, sitting alongside the 15% volume decline that the company separately attributes to customers delaying orders in response to record-high raw material prices.

 The second channel was gross margin compression. Raw material costs, principally copper and aluminium, are priced globally in US dollars. The company purchases copper at USD-denominated global market prices. It sells cables at USD-denominated prices in its target markets. When the kwacha appreciates, it reduces the kwacha-translated selling price while not proportionately reducing the USD-denominated input cost, because the input cost is set by the global copper market rather than the domestic exchange rate. The result is a gross margin that has been squeezed from both ends: record metal prices raising the absolute cost of raw materials in USD terms, and the kwacha appreciation reducing the kwacha-equivalent selling price. The gross margin fell from 7.3% to 2.8%, a four and a half percentage point collapse that turned an operating profit into an operating loss of ZMW 10.451 million (USD 0.587 million).

The third channel was the foreign exchange loss on the net USD position. ZAMEFA holds net foreign currency assets on its balance sheet. When those assets are restated at the end of the period at the stronger kwacha exchange rate, the kwacha equivalent of the USD balance is lower, producing a reported foreign exchange loss. In H1 2026 that loss was ZMW 14.516 million (USD 0.816 million). In H1 2025, the same mechanism produced a foreign exchange gain of ZMW 5.110 million (USD 0.287 million), because the kwacha was depreciating rather than appreciating.

The swing between those two outcomes is ZMW 19.626 million (USD 1.103 million), a figure that alone would have converted a thin operating profit into a material loss.

The balance sheet position at 31 March 2026 contains one figure that deserves more attention than any other: the ZMW 365 million (USD 20.506 million) equity loan from the majority shareholder. Total equity at 31 March 2026 stood at ZMW 417.611 million (USD 23.462 million). Of that, ZMW 365 million (USD 20.506 million) is the equity loan. Accumulated losses have grown from ZMW 28.601 million (USD 1.607 million) at the start of the period to ZMW 61.908 million (USD 3.478 million) at the end, a deterioration of ZMW 33.307 million (USD 1.871 million) equal to the period's net loss. The company stated directly that the support of the majority shareholder through the equity loan ensured that the company remained in a technically solvent position at the end of H1 2026.

That is a sentence that requires reading carefully. Without the equity loan, the accumulated losses and the erosion of shareholders' equity would present a materially different solvency picture. The majority shareholder's continued support is not a detail. It is the structural condition on which the company's ability to continue as a going concern rests.

 The gearing ratio, while elevated at 60%, has improved from 66% in H1 2025, which the company attributes to the reduction in trade payables from ZMW 858.136 million (USD 48.210 million) to ZMW 619.733 million (USD 34.817 million). That ZMW 238 million (USD 13.371 million) reduction in payables represented a meaningful improvement in the creditor position but also reflects lower purchasing activity and lower raw material volumes in the period, consistent with the 15% volume decline. Cash declined from ZMW 310.431 million (USD 17.440 million) at the start of the period to ZMW 175.678 million (USD 9.870 million) at 31 March 2026, consumed by net cash used in operations of ZMW 128.876 million (USD 7.239 million), driven by working capital investment in high-priced raw materials, and investing activities of ZMW 5.877 million (USD 0.330 million). The company remained cash-positive, but the ZMW 134.753 million (USD 7.571 million) reduction in cash over six months, in a period of already-thin margins, leaves a limited buffer for a further period of kwacha strength or commodity price pressure.

On the other hand, ZAMEFA's H1 2026 results illuminate a paradox that sits at the heart of Zambia's economic development challenge. The kwacha's strength is, in macroeconomic terms, a sign of success. Record copper prices generate foreign exchange inflows. The Bank of Zambia's monetary discipline contains inflation. Zambia's debt restructuring, completed in 2023, has restored macroeconomic credibility. The result is a currency that has appreciated more than any other in the world over the past twelve months. These are the indicators of a recovering economy. They are also the conditions that destroy the competitiveness of the domestic manufacturing sector.

 ZAMEFA is not a marginal company. It is a strategic industrial asset: a copper wire and cable manufacturer in a country that produces more copper than almost any other nation on earth. The logic of value addition, of processing Zambia's copper domestically rather than exporting it as raw metal to be manufactured elsewhere, is precisely the logic that justifies a company like ZAMEFA's existence. But that logic is only commercially viable if the exchange rate does not systematically destroy the company's margin on every unit it sells. A kwacha that appreciates 21% in a single six-month period erases the value addition argument with arithmetic. The company adds value to copper by manufacturing it into cables, it sells those cables in dollars, and  reports in kwacha. When the kwacha is the world's strongest currency, the kwacha value of every dollar of cable sold falls, and the economics of the value addition proposition collapse regardless of how efficiently the factory is run.

The company's H2 2026 performance will depend substantially on whether the kwacha maintains its current level, strengthens further, or begins to moderate. ATrading Economics projected the kwacha to trade at ZMW 18.99 by the end of Q2 2026, implying continued strength. If that projection holds, the second half of ZAMEFA's financial year will open with the same structural headwind that defined the first half. A recovery in gross margin toward the 7% level of H1 2025 requires either a material kwacha depreciation, a significant decline in raw material prices that allows ZAMEFA to hold selling prices while reducing input costs, or a volume recovery substantial enough to improve fixed cost absorption. None of those conditions is under management's direct control.

What management can control is cost efficiency, product mix optimisation, and the relationship with its majority shareholder, whose equity loan of ZMW 365 million (USD 20.506 million) is the one instrument standing between the company's current financial position and a technically insolvent balance sheet. For now, that support is in place, but equity loans are not permanent instruments, and accumulated losses that grow from ZMW 28.6 million (USD 1.607 million) to ZMW 61.9 million (USD 3.478 million) in a single six-month period are moving in the wrong direction at a pace that the majority shareholder will be monitoring with close attention. 

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