ZAMBIAN Breweries Plc has posted reduced profit after tax of only K6 million in its financial year period ending December 31, 2020, mainly triggered by higher costs of production and the devastating impact of the Coronavirus on the market.
But the company says it expects this year’s financial performance to drastically improve on the back of a combination of strong volumes, mix and price moderation, translating to bottom-line growth.
In a statement announcing its audited results of the company for the financial year period ended December 31, 2020, Zambian Breweries posted a massively reduced profit after tax of only K6 million last year from around K274.4 million earned in the same period in 2019, largely attributed to significantly higher production costs exacerbated by the kwacha’s worst-ever depreciation and the unprecedented impact COVID-19 had on its sales volumes.
The brewer managed to earn a profit last year after it initially posted huge losses of around K15.5 million after tax during its six-month period ending June 30, 2020, mainly due to the kwacha’s rapid devaluation against major currency convertibles, which pushed up the company’s debt portfolio as well as costs of production.
“Following a strong start to the year, our overall results in 2020 were significantly impacted by the disruption caused by the COVID-19 pandemic. The steep depreciation of the kwacha and the volatile inflationary environment faced during the period (fuel, energy, load shedding and raw materials shortages) eroded our margins significantly, with production costs rising 21 per cent and variable distribution costs up 14 per cent against prior year. Gross margins were down 15 per cent compared with the previous year because of cost escalation in the supply chain. Operating profit for the year was 93 per cent below PY (prior year). Beside the negative impact of the variables mentioned above, operating profit was largely impacted by the exchange rate losses suffered throughout the year,” Zambian Breweries’ company secretary Deborah Bwalya said in a statement.
But she added that the company expected this year’s financial performance to drastically improve on the back of a combination of strong volumes, mix and price moderation, translating to bottom-line growth.
“While the ongoing disruption caused by the COVID-19 pandemic continues to create uncertainty, we expect our top and bottom-line results in FY21 to improve meaningfully versus FY20. We expect top-line growth from a healthy combination of volume, mix and price moderation, translating to bottom line growth. We are fully aware that the financial pressures we are experiencing in our business are equally affecting our employees and consumers, as households face a rising cost of living, and we are deeply concerned by the deterioration of our consumers’ disposable incomes, which is likely to worsen in 2021. But we are very confident in the strength and resilience of our brands and the beer category as a whole,” stated Bwalya.
“We will continue to efficiently utilise our resources while fuelling investments behind our brands. However, adverse macro-economics, coupled with transactional FX and commodity headwinds, will pressure our FY21 EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) margin. The outlook for FY21 reflects our current assessment of the scale and magnitude of the COVID-19 pandemic, which is subject to change as we continue to monitor ongoing developments.”
The brewer, however, posted a higher gross profit of K958.7 million in 2020, up from the K916.8 million in 2019, boosted by higher revenues of over K2.3 billion earned last year.
Zambian Breweries Plc is a subsidiary of AB InBev, the Belgium-based brewer, which took over ownership of SABMiller in a US $100 million deal back in 2016, and assumed new ownership of Zambian and National Breweries Plc.
Ab InBev also manufactures the globally-renowned Stella Artois and popular Budweiser beer brands, among others.