Although devastated by strict trading regulations in the domestic market, the management of Kgalagadi Breweries Limited (KBL), an operational company co-owned by global brewer, SABMiller and Botswana Development Corporation (BDC) says it is here to stay.
KBL executives this week ended the speculation that their holding company, Sechaba Brewery Holdings Limited (SBHL) is toying with the idea of de-listing from the Botswana Stock Exchange (BSE) as a response to government continued imposition of the alcohol levy and traditional beer regulations. Speculation was rife that the global brewer would even consider selling its stake on the BSE quoted entity.
Speaking at a presentation of Sechaba’s financial results for the year ended 31 March 2014, KBL Managing Director Johan De Kock and Finance Director Gert Nel said the group is in Botswana for the long haul and will not be divesting from the country any time soon.
“Sechaba is still making profits and it will be a long time before we make losses. For the short and medium term, we will make money. But the less money we make, the less money goes to government. Meanwhile, we will stay as long as we can,” they said.
Even before he made his presentation, De Kock asked the media not to ask questions related to the company’s status in the bourse, saying the cautionary released by Sechaba recently still stands and should suffice.
In the said cautionary, released in mid December 2013, Sechaba advised shareholders that it was assessing the full impact of certain corporate change proposals that could have an effect on its share price.
Despite his assurance of staying put in the domestic market, De Kock however once again presented a gruesome picture of a company that was struggling to stay afloat, empower Batswana and create employment in the face of dwindling profit margins occasioned by mounting hostility from government.
Though Sechaba has always declared profits and put up a brave face, the truth is that the alcohol levy is hurting the brewer’s margins. Additionally, the traditional beer regulations have crippled KBL’s opaque brands, Chibuku and Phafana.
Because of the regulations, sales dropped as customers couldn’t afford to travel long distances to reach the product. They resorted to illegal homemade brews. Worse, KBL’s efforts to set up depots or beer gardens have not borne fruit because of unavailability of land.
“In the end, government is losing out on taxes. There are also issues of hygiene and public health, occasioned by consumption of illegal brews,” said De Kock.
Sechaba has sought automation opportunities to boost efficiency and extract costs from the production line. Over P293 million has been budgeted for the project this year alone. For example, De Kock revealed that consumers now prefer the returnable 750ml bottles because it’s more affordable than the smaller bottles. On the Chibuku side, the 2litre and the 20litre packs have become a hit because they offer consumers value for money. These changes also necessitated warehouse extensions.
While he agrees that changes in consumer patterns are an indication that KBL’s alcoholic beverages are becoming increasingly expensive for consumers, De Kock also insists that they are proof that KBL is here to stay.
“These expenditures are proof that we are here to stay. In similar circumstances, any other brewer would not have invested the way we are doing. We believe new technology will result in cost savings,” said De Kock.
However he admitted that KBL products are becoming increasingly unaffordable and the company will one day reach the end of its tether. There are also fears that continued automation of the KBL plant will result in job losses.
“At the moment, there is a gap of 130 million liters between where we should have been in our opaque beer sales and where we are. If we continue on this route we will eventually have no choice but to downsize. At the moment we employ 1000 people. The direct effect of such employment is one person to seven beneficiaries and the indirect effect is 1:36,” said KBL Finance Director Gert Nel.
However, the issue of future retrenchment is just lurking below the surface, because employees are aware of the trials and tribulations that the company is facing. De Kock said they always try to suppress talk of possible job losses because it would raise problems of low staff morale and productivity. Once again he reiterated his stance that, despite the hostile business environment in which it is operating, KBL is here to stay.
“We are here to stay. We are in the process of spending P210m for which we have to seek approval from our employers. You think they would give us that kind of money if they didn’t have long term plans for this country. Until we start making losses, we will stay put in Botswana,” said Nel.