We have extracted the Chairman’s report from the 2019 annual report for African Distillers Limited, listed on the Zimbabwe Stock Exchange:
The year under review witnessed major monetary and fiscal policy pronouncements, some of these being;
- Separation of foreign currency accounts (FCAs) to RTGS$ and Domestic Nostro FCA at a rate of 1:1 (October 2018 Monetary Policy Statement);
- Introduction of 2% Intermediated Monetary Transaction Tax (IMTT) (Statutory Instrument 205 of 2018);
- Legislation of RTGS$ as local and functional currency and introduction of an exchange rate (Statutory Instrument 33 of 2019);
- Introduction of an interbank exchange rate for the trade of the RTGS$ and foreign currencies (Exchange Control Directive RU 28/2019); and
- Re-introduction of the Zimbabwe dollar as the only legal tender for transactions in Zimbabwe (Statutory Instrument 142 of 2019).
All these measures have had a significant effect on both the trading and operating environment of the Company. Foreign currency shortages persisted throughout the year, impacting on the Company’s ability to fully supply the market. The resultant exchange rate fluctuations led to increases in costs which in turn exerted pressure on selling prices.
The monetary authorities introduced the RTGS$ as the transactional and functional currency on 22 February 2019. For accounting purposes, the RTGS$ also became the functional currency on that date. The Company has therefore rebased assets and liabilities to reflect this change of currency as detailed in the notes to the financial statements. The Board advises users of these financial statements to exercise caution especially on the statement of profit or loss and other comprehensive income (SOCI) which complies with SI 33/19 but is not in line with International Financial Reporting Standards (IFRSs) as it is a summation of different currency values at the time of trade.
In light of the failure to fully comply with International Financial Reporting Standards (IFRSs), the Company’s external auditors have issued an adverse opinion on the financial statements for the year ended 30 June 2019.
The Company registered a volume growth of 17% on prior year, realised from the first half to December 2018. Spirits increased by 21%, Ready to drink (RTDs) by 18% while wine registered a decline of 10%. Product innovation within the gin and vodka segments significantly contributed to the overall spirit category volume growth.
Revenue and operating income grew by 98% and 257% respectively. The significant increase in operating income is as a result of volume upsurge, supply chain cost management and inflation driven price adjustments. In order to ensure business continuity, the Reserve of Zimbabwe (RBZ) provided a facility of US$22,5 million to one of the Company’s major foreign suppliers, Distell Limited under the Exchange Control Directive RU 28 of 22 February 2019. The facility is in the form of savings bonds which are registered in the name of Distell Limited and were used as payment for long outstanding trade payable balances (legacy debt).
Macro-economic conditions continue to deteriorate further reducing consumer disposable incomes and compromising product demand. Post year end, the Government changed duty structures effectively doubling excise duty on Company products. Affordability is likely to be a challenge going forward. The Company will continue to seek opportunities to protec