Sechaba Brewery Holdings Limited (SBHL) remains profitable in spite of the harsh trading conditions the company found itself operating under, which includes the ever increasing alcohol levy, the group Managing Director, Johan de Kok said on Friday when briefing the media and market analysts on Final Year results.
The alcohol levy, last adjusted on the 19th of December 2014, stands at 55 percent with another increase anticipated during the current financial year. For the 2015 financial year, the levy accrued P183.3 million with de Kok confirming that for the first time the levy was now officially higher than the excise levy.
He acknowledged that the going is getting tougher but through the initiatives they put in place, the group has been able to cushion the effects of the harsh trading environment.
Some of the initiatives Sechaba undertook during the 2015 financial year includes improvement in Total Cost of Manufacturing (TCM) in clear beer and soft sparkling drinks and focusing on Total Cost for Distribution (TSCD) which de Kok said was flat despite increased cost due to pack swing to Returnable Glass Bottle (RGB).
de Kok, who joined SBHL in April 2013, said the effects of the levy are felt in other businesses such as restaurants that sell liquor and other downstream businesses. He, however, said they are engaging with the government on the matter to see if they could find a solution that will suit all but admitted that the progress is slow. The alcohol levy is targeted at 70 percent, which the MD said, will have greater impact on their part as they will have no choice but to downsize the business, resulting with some losing jobs within the brewer.
The group has in the previous year downsized its business in the opaque beer category closing its Palapye plant due to low sales. Its closure also resulted in job losses. De Kok warned that further job losses should be expected in the current financial year as they aim to further downsize the business in the opaque beer category as they try to deal with the market conditions such as Traditional Beer Regulations which effected in July 2012.
Sechaba through its sole associate, KBL, currently employs 1191 people in all its operations.
During the past financial year, Sechaba also took a decision to amalgamate its subsidiaries, integrating the operations of Botswana Breweries Limited (BBL) with KBL to remain with only KBL, a move which was calculated to do away with unnecessary costs. KBL operates four divisions being manufacture, distribution and sales of clear beer, soft drinks, opaque beer and also importation.
Regarding the water and electricity shortage situation, de Kok said the supply interruptions of the two utilities will require contingency measures and increased cost. He revealed that the company will install state of the art generators to continue with production in cases of shortage in energy, explaining that it would not make business sense to import beer from South Africa or elsewhere while it can be produced here. He said the water and electricity situation will be a leverage to engage with the government concerning the alcohol levy.
Performance wise, 2015 was a mixed year for Sechaba as it registered differing performance across all its aspects while total volumes for the year were up by 4.9 percent, clear beer total volumes are 4.8 percent with Carling Black Label brand dominating as the brand contributed half of the category. De Kok explained that when a brand pushes for dominance, it means on the other side other brands suffer as it is the case with St Louis lager and Castle Lite which declined by 1 and 12 percent respectively for the year.
Due to the traditional beer regulations the opaque category declined by 4.3 percent compounded by the discontinuance of exports to South Africa. In the Non-Alcoholic Beverage sector, De Kok said there is a significant growth in competition in this category due to other establishments introducing their own brands. He said the increased competition in the B-Brands will not affect their businesses in the short-term as they have learnt that the B-Brands are beginning to fight among themselves therefore taking Sechaba off the radar for the time being.
The group registered 12 percent increase in this category despite the competition from the said brands. In terms of financial matters, Sechaba reduced costs by P432 000 to P2.5 million. Operating profit also was reduced by 3.6 percent to P201.7 million.