Shift to bulk bottles dents Sechaba’s profits

KBL new bulk pack bottling line would meet changing consumer demand
KBL new bulk pack bottling line would meet changing consumer demand

Sechaba Holdings’ operating profit fell 3.7 percent to P201 million in the year ended March 2015, as consumers shifted to the affordable but lower profit-margin bulk packs.

As a combination of alcohol levy and inflation continue to push up the price of alcoholic and non-alcoholic beverages, consumers have shifted preference to bulk packs.

Sechaba is the listed company that holds 60 percent in brewing entity Kgalagadi Breweries limited (KBL), with the rest owned by global brewery giant, SABMiller.

According to Sechaba, sales volumes grew by 4.9 percent in the year on the back of strong demand for 750ml Returnable Glass Bottle Pack for alcoholic beverages, while the two litres PET bottle also drove sales of the non alcoholic beverages.

However, the higher sales did not translate into higher profits as the bulk packs have lower margins compared to cans.

“The decline in financial performance was due to the negative mix impact of brand, pack and category. KBL saw a growth in bulk packs, and a decline in cans both in the beer and soft drinks categories. This caused a reduction in the actual gross margin ratio of the associate together with the increase in fixed costs due to inflation and volume growth. Fixed Costs and Marketing Costs were within the approved budget for the year,” stated the company.

As a result, KBL recorded a decline in cans sales for both beers and soft drinks categories.

Introduced at 30 percent in 2008, the alcohol levy has been increased annually thus contributing to the higher alcohol prices.

In the year, alcoholic fruit beverages however showed a significant growth due to the ongoing demand for the Core 660ml and category expansion into Red’s.

Soft drinks performed well above expectations finishing the year 12 percent ahead of the prior year. 

The growth in the two litres PET was the biggest contributor to volume growth, albeit at lower margins to the cans.

“The non-alcoholic beverage category ended the year 15.6 percent ahead of prior year attributed to strong growth by Source water and Mageu combined with incremental volume emanating from the mid-year introduction of Mazoe,” reads the report.

However, the discontinuance of exports to South Africa and the traditional beer regulations has impacted the traditional beer performance as it declined by 4.3 percent against prior year.

The company says it continues to find appropriate routes to market traditional beer within the regulations. A fourth and final dividend of 16 thebe per share was declared on March 24, 2015 and paid to shareholders on April 20, 2015. Total dividends paid to shareholders for the financial year were 100 thebe per share.

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