DEAR SHAREHOLDER

The operating environment continued to deteriorate during the period under review. Our production and distribution operations were disrupted by the shortages of electricity and fuel, which in themselves are a manifestation of the limited availability of foreign currency. The sourcing of imported goods and services remains constrained by the shortages of foreign currency, particularly in view of the backlog in settling past due obligations.

Zimbabwe shifted from the multi-currency trading and reverted to the Zimbabwe Dollar (ZWL) as the sole trading currency at the end of June 2019. The policy changes have led to a surge in inflation and a fast depreciating exchange rate. Consumer spending remains low as incomes have lagged the escalation in prices of goods and services. The Company has been adversely impacted by shortages of potable water, electricity and fuel. Volume performance is thus constrained and significantly below last year across our product offering.

CURRENCY CHANGES

The monetary authorities introduced the ZWL as the transactional and functional currency on 22 February 2019, a month before our last year end of March 2019. The Board translated the Financial Statements for the year ended March 2019 in line with the International Reporting Standards and as informed by Statutory Instrument 33 of 2019 (SI33/19). The exchange rate used to translate the company’s assets and liabilities as at 22 February was ZWL2,5 to the US Dollar. The interbank rate had depreciated to ZWL15 to US$1 as at 30 September 2019. The Board is of the view that the reporting currency has not yet stabilised and thus has rebased its assets and liabilities as is more detailed on Note 7 to the financial statements. The Board advises users of these financial statements to exercise caution as they are not in compliance with IFRS but in compliance with SI33/19.

APPLICATION OF IAS 29: INFLATION ADJUSTED FINANCIAL STATEMENTS

The Public Accountants and Auditors Board (PAAB) has pronounced that the economy is trading under the conditions of hyperinflation in line with IAS 29 (Pronouncement 1/2019). The directors have applied the guidelines provided by PAAB and the accounting bodies and made various assumptions to produce the inflation adjusted financial information. This was due to the limitation of data available on the consumer price indices from official sources and taking note of the change in the reporting currency.

TRADING PERFORMANCE

Lager Beer

Lager beer volume declined 48% compared to the same period last year. The pricing of this category has been moderated to maintain affordability given the prevailing economic challenges. The premium category has held its contribution driven by Zambezi lager.

Sorghum Beer (Zimbabwe)

Sorghum beer volume declined 15%. The prices of the major inputs such as maize and imported packaging materials rose ahead of disposable incomes. This has put pressure on the sorghum beer prices which has resulted in consumers switching to more affordable brands and packs within the category.

Sparkling Beverages

The Sparkling beverages volume declined 56% on last year mainly due to the prolonged stock outs at the beginning of the financial year. Volume has recovered in the last quarter on the back of improved product supply and moderated retail pricing. Raw material supply remains a challenge as the category has a high import content.

National Breweries PLC (Zambia)

Volume was 20% down on last year which is partly due to higher pricing on the back of a steep increase in maize prices and the depreciation of the Kwacha. Consumer acceptance of the recently launched returnable pack has been encouraging. Product supply is constrained by capacity and power supply disruptions. Chibuku Super and Shake Shake were the dominant packs.

African Distillers

Afdis recorded a soft volume outturn at 41% below prior year due to limitations in accessing and the high cost of foreign currency. The business continues to successfully launch products that are less foreign currency hungry.

ASSOCIATE ENTITIES

Schweppes Holdings Africa

The business experienced reduced volume performance at 33% below prior year on limited foreign currency supply for packaging material and reduced demand from higher pricing. The company is trading profitably, noting the potential adverse impact of exchange losses on legacy foreign liabilities.

Nampak Zimbabwe

The company continues to trade profitably constrained by the falling demand from its customers on account of their depressed volume and foreign currency challenges.

FINANCIAL PERFORMANCE

It is cautioned that the comparative figures have been translated in terms of SI33/19 at the rate of ZWL1 to US$1. In order to more fairly present the Company’s statement of financial position as at 30 September 2019 the Board has re-based the assets and liabilities to the ZWL as detailed on Notes 7 and 8 of the interim financial statements.

The Group achieved Earnings Before Interest and Tax of ZWL$464 million at 53% above prior year driven by replacement cost pricing in response to inflationary pressures.

Overheads have remained under control in spite of the foreign exchange induced cost escalations. Foreign currency losses and National Breweries Plc borrowings drove the finance charges. The business remains cash generative with a closing cash balance of ZWL$296 million. The group foreign currency exposure of US$72 million remains a concern. In line with the Reserve Bank of Zimbabwe (RBZ) directives RU/28 and RU102, the Company has deposited funds with the RBZ as cash cover for the legacy foreign liabilities “blocked funds”. We have a plan under execution with the Reserve Bank of Zimbabwe on a phased settlement of these liabilities. In view of these arrangements, the “blocked funds” liabilities have been maintained at the 31 March 2019 interbank exchange rate.

ACQUISITION OF UNITED NATIONAL BREWERIES (PTY) LIMITED SA

The Company announced on 21 December 2018 that it had entered into binding agreements to acquire the 100% stake currently held by Diageo Plc in United National Breweries Proprietary Limited (South Africa), (UNB). UNB is the leading brewer of traditional beer and owns the Chibuku brand in that country. The transaction is still pending.

THE COCA-COLA BOTTLER’S AGREEMENT

Shareholders are reminded that the Company is trading under a cautionary issued with respect to the notice received from The Coca-Cola Company (TCCC) advising of an intention to terminate the Bottler’s Agreements with the Group entities (Notified Intention). This followed the merger of AB InBev and SABMiller Plc in October 2016 and the subsequent agreement in principle reached between TCCC and AB InBev to explore options to restructure the bottling operations in a number of countries. The parties are finalising the renewal of the Bottlers Agreement for a three-year term to September 2022.

DIRECTORATE

There have been no changes to the Board of Directors during the period under review. We however bid farewell to Mr T N Sibanda who retires from the Board on 31 December 2019. Mr Sibanda has served the Company with distinction since joining the Board in 1994, most of which time he served as chair of the Audit Committee. The Board extends its thanks and appreciation to Mr Sibanda for his service to the Company.

OUTLOOK

The economy is yet to settle from the turbulence caused by transition from the multi-currency system to the Zimbabwe dollar and the accompanying policy measures in line with the Government Stabilisation Program. The operating environment is expected to remain challenging for the remainder of the year. The company will manage the emerging risks while striving to capture all available opportunities.

DIVIDEND

The Board declared an interim dividend of ZWL 6,75 cents per share which was payable on 4 December 2019. The dividend cover has been increased taking into account the need to fund working capital.

For and on behalf of the Board
CF Dube
Chairman