The parent company of Chibuku has had an interesting half year for their 2018 financial year. In a period their Stock Exchange News (SENS) announcement described as “steady”, competitive forces were rife. Draught beer, clear beer, cheap spirits and a handful of new entrants (notably package segment) into their market segment meant price wars and depressed profitability margins margins.
According to the SENS announcement published on 24th September 2018, “total volumes were 14% up on prior year. Revenue was up 6% compared to the same period last year driven largely by the volume mix, i.e. increased sales of higher margin Chibuku Super from 39% in the prior year to 54% in the current year. A price rollback was taken on Shake Shake in the early part of the year to improve product competitiveness and grow volume.”
Interestingly though, the company managed to reopened the Ndola and Kabwe depots during the period. This definitely improves their supply chain position as the battle rages on in the lower price segment of the market.
Sadly, the business made an operating loss of K24.1m for the period which was an improvement of 32% on prior year. The movement in profitability in the period is attributed to the increased contribution of Chibuku Super and cost-cutting initiatives which led to a reduction in administration costs by 27.6%. However, cost of sales were up by 11.2% in comparison to the 5.9% increase in revenue.
The prior year included payouts for the voluntary separation offer (VSO) which is a measure that is often employed to help reduce costs. Conversely, the increase in finance costs by 169.4% during the current year is attributed to the external borrowings outside the group. This is an indicator of the cost of capital being fairly high with their gearing ratio remaining above 40%.
With a continued negative EPS, investors in the company will be concerned whether the outfit will post a profit come end of year. Forward EPS projections with the current macro environment and competitive forces yield little hope for positive territory. However, continued cost cutting and rationalizing of their product base may turn things around.