How Opaque Can You Get? National Breweries 2016-17 Review
Beverage, National Breweries

Valentine Chitalu, National Breweries Chairman, does not mince his words when he implies his company is at war in a differentiated oligopoly market for opaque beer. Although he cites “economic shocks experienced in the local economy for most of 2015 and part of 2016 that included power shortages, low copper prices, volatile exchange rates and the tripartite general elections of August, 2016 that caused uncertainty” according to the NB 2017 annual report, it is clear that the elephant in the room is the competitive forces that have eroded value. This elephant is comprised of unregulated bulk opaque beer sellers who have no respect for the law and will flout whatever regulation that is put in place.They are the “Robin hoods” of bulk beer and Valentine and his management team are looking to Government to save their sales. For this, they are hopeful that Statutory Instrument No. 72 of 2012 – the Liquor Licensing (Intoxicating Liquor) (Quantities and Packaging)Regulation, 2012 – that bans the production, transport and sale of alcohol in bulk containers will be enforced allowing for perfect completion to prevail.

Conversely, when the market that Annabelle Degroot’s (their Country Director) company has chosen to be in is further analyzed the produce they offer, Chibuku, is elastic.With switching costs very low for this preferred beverage of low income demographics. Therefore, NB is faced with the challenge of large competitors entering their market and exploiting the value chain on the distribution end.Annabelle’s team has to fight with bare fists if they are to win the souls of their consumers and sway them away from unsafe options that have on record caused more harm than good.

The impact of the aforementioned has led to a fall in revenue by 22.3%. This led to negative earnings being recorded on the back of a substantial investment that was made on PPE two years ago (upgrade to modern machinery that will have this company bustling for more years to come). With gross profitability down by 24.9% from the previous financial year, one will argue that this is fall from grace. Hardly so,because comparing their year on year gross margins, the movement was only downwards by 1%. The last time this company recorded revenue in the 370 million Kwacha range was in 2013. Since that time, they have been growing. That is why,in the article “AB InBev losses taste for Chibuku” this website makes the argument that although AB InBev will not be adding Chibuku to its portfolio, a formidable buyer should step up and purchase this value creating machine.

The reason we make the argument for a purchase is not sentimental. The numbers show us that although revenue fell, their cost of sales also tumbled by 21.1%. Shrewd, working capital management is clear with payable days increasing (time to pay obligation, often a red flag for suppliers and an acid test indicates that current liabilities were less than current assets) whilst receivable days sharply reduced (indicative of quicker cash collection) with a marginal decrease in inventory days (meaning tha tChibuku was moving faster off shelves).

Sadly, with the fall in revenue also meant that the company saw operating profit, profit before tax,and net profit all in negative territory. Investors in the company would be concerned with the swelling SGA (Selling and General Admin costs) which were up by 83.1%. Furthermore, the money the company sourced was very expensive as finance costs shot up 89 times fueled by intercompany finance costs (reference to note 27 of the AR). This is because, the Company is controlled by Heinrich’s Syndicate Limited (incorporated in Zambia). The ultimate parent of the Company is AB InBev Plc (incorporated in Belgium).Therefore, Zambrew, SABMiller and Mubex came to collect Interest on amounts from related parties and purchase of goods and services. Subsidiaries are a beautiful thing.


In the coming financial year, Annabelle indicates that her team plan to halt the decline in volumes through improved trade execution and they will be looking to Chibuku Super volume as their savior. Furthermore, they will be restructuring their route to market which is a response to competitive forces that are dominating the tail end of the opaque beer value chain. This will also be achieved through the adoption of a leaner business model. What this means is the NB will focus on key processes to deliver value to customers using fewer resources. Your guess is as good as mine where the pound of flesh will come from. Therefore,prospective suitors of the company will be looking keenly at the numbers and the macro environment.

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