HomeBusiness DigestAfdis reports 267% increase in earnings

Afdis reports 267% increase in earnings

In a statement attached to their full year financial results, Afdis said sales grew by 36% owing largely to the ongoing enhanced focus on market orientation.
This, the company said, resulted in turnover increasing to US$14,4 million from US$10,3 million in the comparable period, an increase of 40%.

The company’s performance was buoyed by the working capital injection from their major shareholders which positively impacted on their ability to acquire raw materials and finished goods.

“Working capital support from our two major shareholders has enabled the company to substantially improve its ability to acquire essential raw materials and finished goods,” the company said.

The increase in sales volumes and a further change in the sales mix saw gross margins improving to 33% from 25% the previous period.

Since the company is an importer of a range of spirits, wines and ciders, it is subject to excise duty which amounted to US$3,3 million in the period, an increase of 41% from the prior period.

The increase in excise duty was mainly attributable to the change in levying structure by the Ministry of Finance in the Mid Year Budget Review last year.
With effect from  September 1 2011, the excise duty  structure was reviewed to US$5/LAA in line with regional and international standards, whereby excise duty is levied based on the absolute alcohol content.

Due to rand-denominated trade payables,  foreign exchange gains propped up the Afdis’ bottom line to the tune of US$725 405. The company recorded a profit for the period of US$1,3 million from a loss position of US$772 931 in the prior period. 

Of the company’s trade payables of R37,8 million, 45% of  these liabilities are subject to forward exchange agreements at an average rate of US$1/R8 and stretch up to May 2012.

This means that the company would realise exchange gains on their trade payables if the rand weakens against the dollar and the forward rate contracts would provide cover if the rand firms to below US$1/R8.

“Exchange fluctuations of the US dollar against the rand have been favourable to the company,” said Afdis.

Despite the company posting an increase in profitability, the business recorded a decrease in their cash generation. The company had a negative cash position of US$171 490 on all its activities during the period as compared to a positive cash position of US$433 584 in the prior period, indicating the prevailing tight liquidity conditions in the economy.

The company did not declare an interim dividend due to the need to further reduce the rand debt against forward contracts in view of the continuing cash flow constraints.

The company forecasts sales and profitability to continue growing  in the second half of the financial year and beyond despite the economic constraints and pressure on disposable incomes.

Analysts say the recently introduced 25% surtax on imported beverages will impact on the company’s sales and profit margins given its impact on demand. But the demand for alcohol has remained elastic in Zimbabwe on the back of improved disposable incomes.

Afdis said the surtax charge on imported beverages will encourage local production.

Recent Posts

Stories you will enjoy

Recommended reading