National Breweries records marginal ‘liquid sales’ growth
Beverage, National Breweries

The second beverage manufacturing company listed on the Lusaka Securities and Exchange (LuSE) has recorded a 6% increase in volume of products sold in the financial year ending March 2021, according to published financials from National Breweries Plc.

The company posted a 24% growth in revenue against a background of deteriorating macro-economic conditions and disruptions caused by the COVID-19 pandemic”, read a statement issued by Natbrew’s Company Secretary Vongai Chiwaridzo on 5th August 2021. “This growth was achieved on the back of a modest product price increase and improved volume performance compared to the prior year”.

The ‘modest’ growth was marred by surges in distribution and administrative cost increases of 36 and 54 percent, year on year. This resulted in a 75% further decrease in operating profit which remains in negative territory for a subsequent financial year. “The company consequently posted a full year operating loss of K122m against an operating loss of K70m for the prior year.”

The company attributes the further declining performance on a number of factors largely macro related and illicit competition. “On the downside, packaging material costs increased due to the depreciation of the Kwacha against major foreign currencies, and this negatively affected the company’s margins. The margins also remained under significant pressure resulting from the continued unabated competition from the illegal trading in bulk beer”    

The business model also saw an increase in impairments with the currency deterioration erasing value. “In addition, the company underwent an impairment review resulting in a charge of K33m. The depreciation of the Kwacha further resulted in a significant exchange loss of K46m whereas finance costs remained flat at K22.6 m during the year due to the restructuring of the facilities. These factors all negatively impacted the company`s performance resulting in a Loss After Tax of K193m and Loss Per Share of K3.07”.

Going forward, the company hopes to address issues around growing volume sales through key strategic initiatives that address competition and the supply chain. The company will intensify efforts to drive volume growth by offering quality and competitively priced products to its consumers and adopting appropriate route to market strategies in order to improve product availability around the country”.

The company has declared that “in the short term the focus will be on formulating strategies to increase market share in the face of competition and a difficult economic environment”. Financial Insight believes that market share strategies often involve alternations in pricing structures. Companies that seek market share growth in the short term often sacrifice margins over scale. Alternatively, with illicit competition appearing in the financial performance statements from Natbrew year on year, curbing of illicit trade using government agencies, awareness on public health issues of consuming illicit product, among others, may hold the key in cooling off pressure on companies financial performance.

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