Zambian Breweries at Half Year 2018
Beverage, Zambian Breweries

Pssshhhhhh was the sound a Mosi bottle made when we reviewed the half year results of Zambian Breweries PLc for 2018. It is clear from the financials that the company enjoyed a stellar performance during the first 6 months of the year. Selling 13% more beverages by volume, AB InBev must be proud of their acquisition. With economic fundamentals firmly on their side during the period (steady trading conditions, increase in copper prices, stable inflation and a non-volatile kwacha).

According the SENS announcement published on 22 August 2018 by LuSE, performance was stronger due to the increase in disposable income. The encouraging results showed a 22% increase in clear beer consumption (something of an oxymoron as legislators grapple with increase alcohol abuse among natives) driven by improved demand on their mainstream brands (Mosi Lager, CBL and Castle Lager). In addition, their newly introduced global brands (the pride on AB InBev): Stella Artois and Budweiser also saw growing demand. Of note was the 21% growth in sales of Eagle lager. You may remember that Eagle is made from Cassava (note to self if you are farming cassava, there is value add and money to be made).

The soft drink side of the business saw a decline by 7% owing to competitive, according to the company, and a protracted winter, according to Financial Insight. On the former, price wars were eminent with cheaper brands entering the market. With barriers for entry set very low, the soft drink line is an easy target for competitors. However, with the Master Purchase Agreement (“MPA”) that was entered into with Coca-Cola Holdings Africa Limited all but concluded with Q3 targets as the official Day 1 transition quarter, Zambia Breweries can rest easy as they cut off this Achilles heel.

At half year, the company has grown overall profitability (Gross) by 9%. Notably, operating exchange rate gains stood at 1036% with currency favouring the brewer. Operating profit was up by 88% leading to a profit after tax of K137 million (123% increase from the same period last year). This performance is outstanding for the not so new Managing Director from Mozambique Jose Daniel Moran. Jose took over the reins in August of 2017 from Annabelle Degroot who now runs the AB InBev business unit in West Africa.

With EPS 123% stronger, shareholders can estimate a forward EPS at end of year of about 0.504. Jose instils confidence in investors with the 19% growth in Total Assets of the company. Furthermore, with shareholder funds growing by 15% thus far (above the market average savings accounts and MPC rate), Jose is well set to meet shareholders at the AGM with confidence.

However, Jose might want to reign in current liabilities that have almost tripled (increased by 185%). His company is entering Q3 and Q4 which has doomsayers indicating tougher economic times. August 2018 inflation rate rose to 8.1% from 7.8%. According to Central Statistics Director Goodson Sinyenga “the increase in inflation is mainly influenced by a rise in prices of both food and non-food items”. With an IMF deal far from being signed, the case of the fiscal deficit could play a part as state enterprises grapple with meeting wage bill demands as well as completion of strategic projects (in short, less liquidity). Furthermore, external to the Zambian macro is the economic war that America is fighting with China. All these should have Jose sleeping late at night to ensure value is protected in the remaining two quarters of 2018.

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