African Distillers Limited (Afdis) says it is facing stiff competition from other local alcohol producers who are selling their products at subsidised prices.
Speaking at the company’s annual general meeting Afdis managing director Malcolm Hollingworth said disappointing results during the year ended June 2011 were caused by costs incurred when competitively repositioning the company in an unforgiving and highly competitive market.
“The market is very competitive unlike before when we were enjoying a monopoly. Now we are facing stiff competition from ten other players, of which seven are established and the other three are backyard producers who appear and disappear at anytime,” said Hollingworth.
During the period under review, Afdis revenues rose to slightly over $15m from $12m in the previous year.
Turnover rose by 32% to $19, 5m on the back of a volume increase of 10%, resulting in improved trading margins of 29%.
Afdis posted an Earnings Before Interest, Taxation, Interest and Amortisation (EBITDA) loss of $0,29 million compared to $2,15 million in the prior year.
“Although a small trading profit was achieved, this was eroded by restructuring and interest costs as well as exchange rates,” said Hollingworth.
He said restructuring costs have been fully settled while exposure to exchange losses on the rand debt had been provided for at current rate-exchange rates
“The exchange losses which had cost the company dearly in the past are now under control as the company has been able to secure forward exchange contracts for over 50% of its foreign indebtedness at very favourable rates,” Hollingworth said.
He said liquidity remained tight while the wine and spirit industry require a high investment in stock holdings to service its production and sales requirements.
Hollingworth said what compounded the situation was the need to pay excise duties in advance of receipt of sale proceeds.
He, however, said improved sales volumes and higher trading margins should considerably improve liquidity by year-end.
“Volumes growth, which started in the latter quarter of last year has continued and what is more encouraging is a large portion of the growth has taken place in our range of premium products where we dominate the market,” said Hollingworth
“It is not financially viable for Afdis to locally produce wines and ciders and so these ranges will continue to be imported. In contrast, in excess of 90% of our spirits sales which are in turn 60% of total sales, are locally produced.”
Hollingworth said the liquor business was about trends and the company continued to focus on marketing its brands and educating the market on the risk of purchasing cheap alcohol.