Annabelle Degroot: Zambrew Finance Director
Strategic Review and Prospects
Despite tough economic and operating conditions, the business remains positive and optimistic. We are greatly encouraged by Government’s decision to reduce the excise rate from 60% to 40% on clear beer effective 1st January, 2016. This will enable us to continue to offer affordable clear beer offerings. Affordable pricing in clear beer encourages consumers away from the untaxed and cheaper illicit spirits and bulk opaque categories which typically have higher (43% in the case of spirits), and unregulated ABV (Alcohol by Volume) levels than clear beer. By encouraging drinkers into the legitimate clear beer sector, ABV levels are contained at 4-5% and tax revenue increases. An excise rate of 40% on clear beer will ensure clear beer pricing is comparable in the region and will halt the smuggling of Castle Lite and other imported beers. As at 30th September, 2015, we estimate that at least 55% of all Castle Lite sales in country were from smuggled untaxed product. As this volume will revert to our business, Castle Lite local production will resume in the next financial year following a $2m packaging upgrade generating an additional source of tax revenue.
This anticipated volume growth will enable us to continue with our investment strategy and local sourcing initiatives over the long term generating employment in support of the Government’s industry diversification agenda.
We are pleased to report that we introduced cassava into our Eagle brand in the period, making it a blend of Cassava and Sorghum sourced locally from small scale farmers. The customer response to the introduction of cassava has been very positive such that we will now move forward to grow this brand with cassava. The next steps are to develop the cassava supply chain and to improve our technical capability in brewing with this product.
We expect to face difficult trading conditions in the second half of our financial year as the inflationary, exchange and interest rate pressures reduce the disposable income of our consumers. As a result, we will focus on improving our in trade execution and will continue to review our costs with rigour.
We are pleased to report that our $32.6m Maltings Plant in the Lusaka South MFEZ is close to completion. We expect the first barley intake in late November 2015. The first batch of malt is scheduled to be produced in February 2016, with full commissioning in March 2016. The Maltings project will create a sustainable demand for Zambian barley and has the capacity to malt 15,000 tonnes of Barley. This will provide us with malt export opportunities to the region.
HY 2016 financial results