Zambian Breweries Plc (Zambrew) is a brewing and beverages company producing and marketing a wide range of soft drinks and clear beers under two breweries and three bottling plants in Zambia. The company has a virtual monopoly on clear brew products in Zambia, with popular South African brands in its product range such as Carling Black Label, Castle Lager, Castle Lite and Redd’s. The company also produces strong, local brands to cater for local tastes which are marketed under the Eagle and Mosi Lager brand name. The Soft Drinks division produces well-known international brands, including Coca-Cola, Sprite, Fanta and Schweppes (Annual Report, 2020).
Market Environment
Innovation, resilience and adaptability have been the trademarks of Zambian Breweries since its inception which have contributed to the increase in its production volumes and profits within 2021. The consistent growth of the nation’s population and economy has worked in Zambrew’s favor which has allowed them adopt a strategy of profit maximization and unit fixed costs reduction. This strategic approach successfully contributed to the plant expansion plans for both their Lusaka and Ndola plants that resulted in a 15% increase in their overall production capacity (Abridged Financial Statements, 2021). Moreover, this allowed the company to meet its local demand by the third quarter of 2021 and put them in a good position to sustain their market growth in the market. However, for a second year the Covid-19 pandemic has adversely affected the business for Zambrew’s distribution and trading partners who have experienced several issues and hardships during the period. In order to address these issues such as price manipulation, glass shortages and supply the company utilized key partnership agreements to tack these pressing issues.
Financial Performance
In the 2021 financial year Zambrew experienced a strong start which continued throughout the year. The company continued to deliver a robust performance with a 15% increase in the beer volume sales compared against the 2020 sales. Profit after tax (2021: ZMW 147,952 million) increased by 2432% against prior year (2020: ZMW 5,939 million) even in the context of the on-going COVID-19 related restrictions, due to the growth in volume and net revenue (Abridged Financial Statements, 2021). Moreover, the operating profit for the year was 700% higher than prior year, driven by a strong performance and better managed costs, specifically with the comparative foreign exchange losses, which were 30% lower than 2020.
Fixed costs declined by 5%, mainly due to continued cost-saving. The high cost of goods sold (COGS) (ZMW 2,024 million: 2021) compared to (ZMW 1,346 million: 2020) was associated with core brands and imports which translated into a lower gross margin, despite the higher net revenue. Furthermore, the earnings per share increased to (0.21: 2021) from (0.01: 2020) indicating a significant growth in the financial performance of the overall business.
Future Outlook
The Company is hopeful of improved market conditions as COVID-19 restrictions ease, enabling them to continue focusing on maximizing production through their capacity expansion and glass investments. In the third quarter of 2022 Zambrew intends to roll out a Distributor Management System in order to create a foundation for a business to business (B2B) platform. Overall these various initiatives in the current financial year are intended to increase the company’s ability to better service their end user consumers. Moreover, the company projects to continuous invest in its production, marketing, storage and logistics in order to enhance the business model and output.