Afdis flags cost squeeze
STAFF WRITER
Publicly traded wines and spirits maker, African Distillers (Afdis), says rising fuel and packaging material costs, a stronger South African rand and higher taxes are squeezing profitability despite the company delivering robust growth in sales volumes and revenue in the quarter to June.
Afdis reported a strong trading performance, buoyed by a stable operating environment characterised by steady exchange rates, subdued inflation and tight monetary policy, which supported consumer spending and strengthened demand across its product portfolio.
However, the company warned that imported cost pressures are beginning to weigh on margins, even as revenue and volumes continue to climb.
Company secretary Lydiah Mutamuko said higher fuel and packaging costs, the appreciation of regional currencies against the United States dollar, particularly the South African rand, and the Value Added Tax (VAT) adjustment introduced in January had increased operating costs during the period.
“Notwithstanding these positive developments, the Company experienced cost pressures during the quarter, mainly from higher fuel and packaging material costs, the impact of stronger regional currencies, particularly the South African Rand, on imported inputs, and the VAT adjustment implemented in January 2026,” Mutamuko said.
The cost pressures emerged against a backdrop of improving macroeconomic stability, which enabled businesses to plan more effectively while supporting consumer demand.
Economic activity in key sectors, including agriculture and mining, also helped sustain spending during the quarter.
Afdis said tighter enforcement against smuggling, including strengthened border controls and intensified operations targeting counterfeit and illicit alcoholic beverages, had significantly reduced grey market activity, benefiting formal sector sales.
The company recorded a 43% increase in overall sales volumes compared to the same period last year, with growth registered across all major product categories.
Ready-to-Drink (RTD) beverages led the performance, with volumes rising 48%, driven by sustained demand for cider products.
Wine volumes surged 80%, supported by strong sales in the affordable segment, particularly the 4th Street, Montello and Green Valley brands.
Spirits volumes increased 32%, underpinned by robust demand for brown spirits, especially Star Brandy, as well as improved product availability across key brands and packaging formats.
The strong volume growth translated into a 47% increase in quarterly revenue to US$27.9m, reflecting stronger route-to-market execution, improved product availability and a favourable sales mix.
Afdis said demand within the formal retail market remained resilient, supported by stable macroeconomic conditions and reduced competition from illicit products.
While improved operating leverage and disciplined revenue management helped support profitability, the company acknowledged that these gains were partly offset by escalating input costs.
Management said protecting margins would remain a key priority through disciplined pricing, an optimal sales mix and rigorous cost management.
Looking ahead, Afdis maintained a positive outlook for the remainder of the financial year, citing continued macroeconomic stability, resilient consumer spending and sustained regulatory efforts to curb smuggling and counterfeit alcoholic beverages.
Nevertheless, the company cautioned that rising input costs remain a significant risk.
Management said it would continue monitoring movements in regional currencies, fuel and packaging costs, as well as the impact of tax adjustments, while pursuing initiatives aimed at improving profitability and expanding market share.
The company is also pressing ahead with strategic capital investments designed to support future growth, including the installation of an additional US$8m packaging line, which is expected to increase production capacity and position the business to meet rising demand over the long term.
