Sechaba reels under tough alcohol regulations
Keikantse Lesemela | Wednesday July 2, 2014 13:46
In the annual report for the year ended March 31 2014, the brewer says although exports rose, local sales of alcoholic beverages’ softened by 2.4 percent as the levy coupled with tough traditional beer regulations dropped total sales by three percent.
“Alcoholic beverages declined by three percent against prior year due to the continued impact of the traditional beer regulations. Over the year, sparkling soft drinks declined by one percent as competition increased with competitors selling lower quality brands at prices below KBL prices,” managing director, Johan De Kok said in a statement accompanying the results.
The levy on alcoholic beverages was increased by five percent in December last year from 45 percent to 50 percent resulting in the group increasing prices of alcoholic products.
De Kok said that the challenges faced by KBL as a result of the traditional beer regulations have continued. “The company has intensified efforts to engage local authorities in attempts to formalise and establish its distribution network in the spirit of the regulations,” he said.
However, in the period, the company recorded six percent increase in profits after tax to over P350 million. Turnover increased by 6.5 percent due to exercise tax, levy and price increases.
“Operating profit however was 7.3 percent ahead of prior year due mainly to increase in depreciation charges, related to further capital expenditure during the year,” said De Kok.
Distribution costs also increased by 13 percent due to fuel price increases and the traditional beer market reorganising its route-to-market.
The alcoholic beverages industry has been under pressure since the introduction of an alcohol levy in 2008. In 2012, government introduced new traditional beer regulations, which resulted in the closure of informal Chibuku outlets. Sechaba said that the strategy to invest in beer gardens seems to be losing momentum due to the unavailability of land. The effects of the regulation saw the company closing its opaque beer factory in Palapye last year due to changes in the business environment, mainly the pressures on sales of alcoholic beverages induced by the alcohol levy. The company last year merged its alcoholic beverages unit KBL and its non-alcoholic beverages section BBL to operate as a single operating entity.
The amalgamation process saw the integration of BBL and KBL’s back-office functions, particularly key support departments to reduce duplication of work and lower the administration costs of running separate operations. After the amalgamation process, the surviving entity, KBL now operate four divisions that include manufacturing, distribution and sale of opaque beer and soft drinks. KBL and BBL were both 60 percent owned by Botswana Stock Exchange listed Sechaba Holdings.
Global brewing giant, SABMiller, owns the remaining 40 percent interest in the company.