• Tue. Apr 23rd, 2024

ANALYSIS| Localized Production, Rising Volumes Drive Afdis to ZWL$585mn H1 Profit

ByEconomic Times

Nov 15, 2022

By Yona Banda

Financial Performance Highlights

Listed spirits manufacturer African Distillers (Afdis) Limited saw its inflation adjusted half-year profits rise by 234% to ZWL$584.5 million. The group’s gross profit climbed 79% to ZWL$6.1 billion and the operating income gained 128% to reach ZW$1.96 billion.

 The company’s total revenue reached ZWL$14.9 billion, up 48% from the comparative 2021 period. Wine sales showed the strongest growth at 65% to ZWL$1.2 billion. Spirit sales remain the main revenue earner with ZWL$8.5 billion in sales while the Ready-to-Drink (RTD) segment earned ZWL$5.6 billion.

The revenue performance was driven by rising sales volumes as wines grew by 24%, which the company attributed to improved availability and affordability of some wine brands which are now packaged locally.  Spirit and Ready to Drink volumes grew by 9% and 11% respectively driven by renewed focus on direct sales distribution

Net operating cash flows for the period stood at ZWL$2.5 billion which funded net capital expenditures of ZWL$713.5 million.

At the end of the period, the company’s total assets stood at ZWL$14.8 billion with cash holdings of ZWL$1.5 billion. Total liabilities stood at ZWL$7.4 billion, with borrowings of ZWL777.5 million and foreign payables equivalent to ZWL$2.4 billion.


The company’s margins saw improvement, with the gross profit margin rising from 34% to 41% and the operating income margin rising from 9% to 13%. The improvement was attributed to a shift to replacement cost pricing and improved cost management.

Looking ahead, the Company outlined its strategic aims to focus on product innovation, market share growth, production efficiencies and cost containment measures.

The company declared an interim dividend of US$0.0025 per share.

Commentary and Analysis

Overall, it is a fair set of financial results from the country’s main source of alcoholic spirits. Revenue and volume growth would have been expected in the “post-covid” operating environment. The margin improvement is an interesting development, given the global increase in agricultural commodity prices experienced in the first half of 2022. It follows that the company has effectively managed to pass the production cost inflation to the consumer. Going forward, economic factors relating to disposable income will be the immediate key concern. As the company has comparatively less scope to tap into informal market distribution channels, the effect of the tight monetary policy on the formal retail sector will be another key concern.

In the tight monetary environment, the company will need to maintain a healthy cash balance to ensure working capital needs are met. This could lessen the scope to invest in the broad strategic goals of product innovation and efficiency optimization. Product innovation is arguably an area that Afdis has lagged in recent years. The country’s shifting population dynamics call for the company to reinvent its product portfolio. The wide availability of imported spirits and alcoholic beverages puts an emphasis on developing products that are aligned with emerging tastes. The growing influence of local digital media should provide a useful platform to tap into the developing trends. Globally, digital media is increasingly an avenue to develop products with branding and characteristics that are specifically aligned to a target market. That could be where the competitive edge lies for Afdis to create brand value for its products and lure some customers away from imported competition. It’s an avenue Afdis will eventually need to exploit – given the emergence of micro-distillers that are taking up the informal and low-value alcoholic beverage markets.

On the ZSE, since the start of 2022 the Afdis share has gained 145% in nominal terms and lost 55% in USD implied terms. The share is currently trading at a price to book ratio of 4.9 – Harare

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