Thursday, September 24, 2020

Better days ahead for Sechaba?

The local brewing giant, Sechaba Brewery Holdings Limited, might have seen the last of its worst days as it changes tact to deal with challenges that have been exerting downward pressures on its bottom line.

In its recently released 2017 annual report, the brewer says it will leverage on Anheuser-Busch InBev’s expertise to deliver strong growth for the future. In 2016 AB InBev acquired SABMiller, a long term partner of Sechaba. AB InBev, the international brewery behemoth, owns 16.84 percent of Sechaba.

The two brewers are tied at the hip as they hold substantial interest in Kgalagadi Breweries Limited, with Sechaba holding a 60 percent stake and AB InBev holding 40 percent. Moreover, AB InBev has management control over KBL, offering insight and experience with regard to management, technical, brand building and distribution expertise.

Sechaba through KBL, its sole investment, operates in a challenging environment marked by tough regulatory environment made worse by the alcohol levy that has been slapped on the company’s alcoholic products.

“The regulatory environment continued to present very real challenges. The levy rate for alcohol content of 5% and less remained at 50% and for alcohol content of above 5% is as it was at 55% for the year under review,” the brewer reported in its annual report. “Additionally the levy on locally produced alcoholic beverages was changed to include duty payable in terms of Customs and Excise Duty Act. This change has had a significant impact to the financial results of the company.”

This has resulted in declining beverage sales volumes which contracted by 4.7 percent, spearheaded by weak sales in traditional alcoholic beverages, all non-alcoholic brands, and clear beer.

“Beer in both Traditional and clear beer had a tough start to the year on the backdrop of a slow economic downturn and unfavourable weather (Tropical Cyclone Dineo) impacting Botswana and the region with floods during the months of February and March,” the company said.

Overall these factors affected the brewer’s bottom line as profit for the year declined by 12.2 percent, compared to 2016 profit. Still, Sechaba is bullish about the future, and perhaps for a good reason. President Mokgweetsi Masisi has hinted that his new administration is looking at reviewing the liquor act, with emphasis on tweaking the alcohol levy and adjusting operating hours that govern the selling of alcohol. However, that’s not all that Sechaba is banking on.

“KBL has now adopted a new way of looking at the beer category that recognizes our market expectations and the role of brand portfolios in driving category growth. As we look forward, we are excited about the growth opportunities,” said Thabo Matthews, Sechaba’s chairman of the board of directors.

The brewer will also be counting on the combination of SABMiller and AB InBev, something that the company has hailed as progressive since the acquisition that happened two years ago.

“The combination has created something greater than the sum of its parts. This has only been possible through our Dream-People-Culture platform, which we expect to drive performance going forward. KBL is set to benefit from the insights and experience with regard to management, technical, brand building and distribution expertise,” explained Matthews.

Sechaba which is listed on the Botswana Stock Exchange has been having a hard time on the local bourse. The company’s stock tanked 27.9 percent in 2017, making the stock the second worst performer. In 2016 the stock lost about 5.3 percent in value. The company acknowledged that uncertainty regarding the counter’s operative environment (regulatory challenges); and the stock’s declining financial performance have eroded investor confidence to a certain extent, as reflected by the weakening share price.

Botswana Development Corporation, formerly a single major shareholder in Sechaba at 25.59 percent has since reduced its exposure to the company’s stock, leaving it only with 20.16 percent holding in Sechaba. However, Botswana Public Officers Pension Fund, the largest pension fund in the country, has stepped up its interests in Sechaba, becoming a major single shareholder.

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