Sechaba Brewery Limited, the listed parent company to Kgalagadi Breweries Limited and Botswana Breweries Limited, has defied tough trading environment and in turn shrugged off the “cry baby” label to put smiles on shareholders faces with better than expected results.
The KBL Group Managing Director, Johan De Kok, admitted that they actually produced “good results” despite a hostile environment and paid tribute to Hloni Matsela for making investors happy while fighting the impact of government’s war on alcohol consumption.
“We actually produced good results despite the challenges,” De Kok told reporters at the company presentation of the results for the full year ended 31, March, 2013.
The results show that Sechaba grew revenues by 11.6 percent from P 1, 56 billion on the corresponding period to P1, 74 billion. The gross profit jumped to P754 million from P622 million while profit after tax was up 17.4 percent from P280.6 million on the prior year to P329.4 million.
The hostile environment that Sechaba’s subsidiaries operate under include the alcohol levy that Ian Khama’s government reviews from time to time, new Traditional Beer Regulations that were effected in July 2013 and rising costs that come with high oil prices. KBL also had to adjust its salaries for its 800 employees, which were above inflation.
The levy impacts on KBL sales as it is forced to pass the cost to the consumer while traditional beer regulations left elbow benders stranded as Shebeen queens were forced to close shop. The last alcohol levy increase was in October 2012 when it was adjusted by 45 percent, chasing swiggers away.
The traditional beer regulations, which have been described as more harmful than the alcohol levy, barred traditional beer sellers from operating their businesses in homesteads, particularly the selling of Chibuku. This left hundreds of retailers, especially women, displaced and the situation is worsened by the unavailability of land to set up formal retail operations.
De Kok admitted that BBL, its opaque beer division, is struggling to invest in beer gardens “as land availability continues to be a challenge”. KBL had set aside P10 million in order to help displaced retailers establish themselves in new locations.
The idea was to help retailers build structures, especially in highly populated areas. The four major routes served by BBL are Gaborone, Francistown, Palapye and Lobatse. Although revenues grew during the period, Sechaba results showed that the group volume performance declined 8 percent the prior year. The KBL volumes went up 8 percent, but not at the 8.6 percent growth registered in the corresponding period. BBL volumes were down 24.6 percent.
Total alcoholic beverages declined by 13 percent with St Louis larger declining 8.2 percent. Carling Black Label, St Louis Export and Castle Lite continued to lead the recovery in the market.
Consumers are sobering up as total non-alcoholic beverages increased by 27.5 percent the prior year with sparkling soft drinks growing by 4.9 percent and 2 L PET growing by 13.8 percent. Source water failed to grow in the double digit as it faced competition from the market. It recorded a by 0.9 percent growth. The Mageu category grew by 43.4 percent.
To help the struggling traditional beer division, KBL said it is spending P7 million on the Lobatse plant to rebrand Chibuku and export it to the South African market.
The new Managing Director said his company will continue to lobby government over the alcohol levy and strongly denied critics’ accusations of KBL being a cry baby as it is able to make money despite the levy.
He said they will keep going back as they need to find a common ground. “We are not cry babies and the results speak for themselves”.
Motswedi Securities said the Sechaba results were in line with expectations due to beer regulations and alcohol levy.
“The strategy to invest in beer gardens seems to be losing momentum due to the unavailability of land. Another opaque beer factory in Palapye was also shut down in May as a result of volumes declining below break even,” said Garry Guma, an analyst at the firm.
“In the short term we see growth coming from the soft drinks and clear beer category while we expect the opaque beer segment to continue facing challenges. There is another possible increase of the alcohol levy this year again and this may further hurt volumes. The govt is on record as saying that it will continue reviewing the alcohol levy until drinking habits change.“