Sechaba Holdings, the listed parent company to Kgalagadi Breweries Limited has renewed a market cautionary in which it announced that it is assessing the full impact of certain corporate change proposals that if embarked upon and successfully implemented, may have an effect on the price at which the company’s securities trade at. Faced with an increasingly hostile trading environment, the Botswana Stock Exchange quoted brewer continues to evaluate its options, which may include a possible de-listing from the local bourse as well as change in ownership.
Meanwhile figures from the stock exchange show that by close of business on Friday, Sechaba led the upside bracket pocketing a huge 125 thebe to trade at a new 12 month high of 2600thebe. Although the brewery giant posted good profit margins for their FY results, the group has been operating under a tough environment which exerted pressure on its volumes and profits. When announcing the group’s financial results for the year ended 31 March 2014, KBL Managing Director, Johan De Kock revealed that the brewer’s profits have dwindled from double digit growth in the last year to single digit growth in the current year.
He said total volumes for the year were in line with the prior year, while the group’s turnover increased by 6.5percent from P1, 74 billion in 2013 to P1, 86 billion in 2014, largely due to excise tax, levy and price increases. KBL’s production cost saving initiatives continued to bear results as the group recorded gross profits of P855 million, up 13.5 percent from P754 million in the prior year. However, operating profits increased marginally by 7.3percent to P440m, mainly due to increase in depreciation charges related to further capital expenditure during the year and the opaque business re-organising its route-to-market. Income tax charges rose because of a hike in deferred tax on the increase of returnable containers in the business while profit after tax rose 7.4 percent to P435m.
With no indications that government will backtrack on increasing the levy every year, Sechaba has resorted to investing on improving its infrastructure and production machinery so as to extract costs from the production line.
The group invested P89m in a new non-returnable bottle line and a further P55m in a new PET line. P46m was spent on containers, P30m on warehouse extensions and a further P12m on coolers. De Kock explained that consumers now prefer the returnable 750ml bottles as they are looking for value for money. Additionally, on the non-alcoholic beverages side, the brewer has also had to install a new PET line which has also heightened the need for more space, thus the expenditure on warehouse extensions.
KBL’s opaque beer brands, Chibuku and Phafana, continued on a downward spiral as traditional beer regulations piled pressure. Opaque beer dropped 11 percent as the traditional beer regulations, which are widely considered more harmful than the alcohol levy, hit hard on the brewer. The opaque beer business, which is targeted at the lower income market, started declining when the regulations barred the selling of Chibuku at homesteads.
“The regulations barred us from delivering opaque beer to the consumer’s door. Our customers can’t afford to travel long distances to reach the product and they have now resorted to illegal homemade brews. Additionally, our efforts to set up more depots or beer gardens have not borne fruit because of unavailability of land,” said De Kok.