Sechaba profits slide again on weaker alcohol sales

BRIAN BENZA
Staff Writer | Friday November 19, 2010 00:00

 

In a statement accompanying the unaudited results for the six month period, the company says the aggressive prices cuts by their competitors, who are favoured by the application of the levy, saw beer volumes slide by 6 percent while sorghum beers also weakened by the same margin.

' The operating profit for the period consequently recorded a 6.5 percent decline over prior period and profit attributable to shareholders was down 4 percent,' says Sechaba.

Looking ahead Sechaba say they see conditions getting tougher for their business as there has been indication that the Alcohol levy will be further increased.

During the State of the nation address delivered two weeks ago, president Ian Khama said that government would from the 1ST of December impose another upward adjustment to the Alcohol levy.

Further Sechaba say volumes were impacted by the migration of customers from low alcohol beverages to cheaper, high alcohol content beverages.

Gross profit declined by a marginal 0.7 percent to P 224.7 million as cost of sales slid 3.7 percent to P314.3 million, with the margin improving by a marginal 80 basis points to 41.7 percent on first half margins, albeit being relatively flat with second half levels. Management noted that the reduction in cost of sales was mainly due to a reduction in certain commodity prices and favourable exchange rates on the Euro and US Dollar. BBL was able to reduce variable costs by as high as 20 percent due to lower raw material and fuel prices.

Operating profit declined by 6.5 percent to P108.5 million, with the operating profit for KBL plunging by 26 percent while BBL charged ahead 25 percent.

Operating profit was largely affected by 334 percent decline on other operating income and a slight 4.7 percent increase in administrative expenses, but aided by a 22 percent reduction in sales and distribution expenses. A second interim dividend of P 0.17 was declared on 8 October 2010 and will be paid to shareholders on 6 December 2010.

Despite the seen tougher conditions, Sechaba is still hopeful that with the  recovery in mining revenue as well as the recently announced 10 percent in civil servants salaries, volumes should improve in the second half of the year.