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KBL profits on free fall, Alcohol Levy continues to hurt

Premier beer maker, Kgalagadi Breweries continues to suffer because of the controversial Alcohol Levy. The company’s profit after taxation continued to hit a downward trajectory as the 2018 half financial results mirrored a 14.2 percent contraction compared to the 2017 first half performance.

This information is communicated by the company’s unaudited financial results for the six month ended June 2018 released this week. Kgalagadi Breweries Limited is the sole investment of Botswana Stock Exchange listed Sechaba Holdings Limited. Despite an increase of 9.8 percent in profit before tax against the prior half year ended June 2017 driven by increase in volume and efficiencies in the operations of the business, profits after tax shrunk primarily due to increased alcohol levy.

According to the report, the decline in profits after taxation can also be attributed to additional deferred tax which was caused by timing difference of the accounting and tax base of property, plant and equipment. During the period under review total volume performance increased by 8.2 percent compared to the six months corresponding period in 2017. Volume performance increase was realized in all categories except the Traditional beer segment. 

The Traditional beer segment volumes which are predominantly the famous Chibuku beverage has been on a decline since the implementation of the tough beer trading regulations restricting homestead trading hours of Chibuku. In the entire 2017 financial year the division registered 7.6 % decline. Sechaba Holdings has continuously outlined for the past 2 years that the Alcohol Levy significantly hurts company financials.

The Alcohol Levy Regulation was amended effective 1st of April in 2018.  The levy rate for alcohol content of 5% and less reduced to 50% and for alcohol content of above 5% remained at 55%. Additionally the calculation for the levy on locally produced alcoholic beverages was revised to include excise duty payable in terms of customs and excise Duty Act.


Last year during the 12 month period ended December 2017, KBL Profits contracted by 12.2 %. This decline was driven by poor performance in the company’s major beverages  categories being  Traditional Alcoholic Beverages which registered a decline of 7.6 percent ; Non Alcoholic brands which realized a 7.0 percent contraction while Clear Beer category  posted  a decline of  2.7%. Beer in both Traditional and clear beer had a tough start to the year on the backdrop of a slow economic activity in the last quarter of 2016 which spilled into the 2017 trading year.

Sechaba Brewery Holdings Limited is an investment company listed on the Botswana Stock Exchange. Currently Sechaba holds a 60% shareholding in its sole investment, Kgalagadi Breweries (Pty) Ltd (KBL), whilst AnheuserBusch InBev (AB InBev) holds 40%. AB InBev holds a further direct stake of 16.84% in Sechaba. AB InBev is the largest brewer in the world, with more than 500 beer brands sold in more than 150 countries and some 200,000 employees in over 50 countries, following a merger with SABMiller Plc in October, 2016.

AB InBev has management control over KBL, offering insight and experience with regard to management, technical, brand building and distribution expertise.  KBL operates four traditional beer breweries, a clear beer brewery, a sparkling soft drinks production plant and four sales and distribution depots around the country.

Botswana Development Corporation, wholly government owned investment entity owns 25.59 % stake in Sechaba Holdings Limited while Botswana’s largest Pension fund, BPOPF holds a significant stake of over 20 % through its different assert managers. For this half year period Sechaba declared an interim dividend of 22 thebe per share for its shareholders.

Following an agreement between AnheuserBusch InBev (AB InBev) and The Coca Cola Company (TCCC)for the latter to acquire the non –alcoholic ready –to –drink business segment of Kgalagadi Breweries early this year, on the 3rd of July 2018 the  two companies entered into a Master Purchase Agreement in terms of which the Sellers have agreed to dispose of their interests in KBL’s business of preparing, packaging, distributing, promoting and selling of  non –alcoholic ready –to –drink beverages with exception to Mageu. Sechaba reports that KBL is currently going through a restructuring exercise in order to re-organize the shareholding of the KBL  and the new company  as well as to separate the business from KBL‘s business promotion.


ALCOHOL LEVY REVIEW

Meanwhile the liquor and breweries industry hopes to leverage from the new trading hours which took effect beginning of this month as well as a recovering macro economy. The 2003 Liquor Act was amended by the just ended winter session of the 11th parliament. The motion was tabled by Minister of Investment, Trade & Industry Bogolo Kenewendo. The previous trading hours restriction was one of the many changes that were championed by former President Lt Gen Dr Seretse Khama Ian Khama during his presidency.

 The review of the Liquor Act was viewed by many as the brain child of current President, Mokgweetsi Masisi who observers note he is on a quest to undo many of Khama’s restrictive regulations. Currently the Ministry of Health & Wellness is also engaged in public consultations with a view to review the Alcohol Levy which companies in the beverages and liquor industry continue to report as an impediment to business. Since inception the Alcohol levy has collected over 2.6 billion pula.

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China’s GDP expands 3% in 2022 despite various pressures

2nd February 2023
China’s Gross Domestic Product (GDP) expanded by 3% year-on-year to 121.02 trillion yuan ($17.93 trillion) in 2022 despite being mired in various growth pressures, according to data from the National Bureau Statistics.

The annual growth rate beat a median economist forecast of 2.8% as polled by Reuters. The country’s fourth-quarter GDP growth of 2.9% also surpassed expectations for a 1.8% increase.

In 2022, the Chinese economy encountered more difficulties and challenges than was expected amid a complex domestic and international situation. However, NBS said economic growth stabilized after various measures were taken to shore up growth.

Industrial output rose 3.6% in 2022 over the previous year, while retail sales slightly shrank by 0.2% data show that fixed-asset investment increased 5.1% over 2021, with a 9.1% hike in manufacturing investment but a 10% fall in property investment.

China created 12.06 million new jobs in urban regions throughout the year, surpassing its annual target of 11 million, and officials have stressed the importance of continuing an employment-first policy in 2023.

Meanwhile, China tourism market is a step closer to robust recovery. Tourism operators are in high spirits because the market saw a good chance of a robust recovery during the Spring Festival holiday amid relaxed COVID-19 travel policies.

On January 27, the last day of the seven-day break, the Ministry of Culture and Tourism published an encouraging performance report of the tourism market. It said that domestic destinations and attractions received 308 million visits, up 23.1% year-on-year. The number is roughly 88.6% of that in 2019, they year before the pandemic hit.

According to the report, tourism-related revenue generated during the seven-day period was about 375.8 billion yuan ($55.41 billion), a year-on-year rise of 30%. The revenue was about 73% of that in 2019, the Ministry said.

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Business

Jewellery manufacturing plant to create over 100 jobs

30th January 2023

The state of the art jewellery manufacturing plant that has been set up by international diamond and cutting company, KGK Diamonds Botswana will create over 100 jobs, of which 89 percent will be localized.

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Investors inject capital into Tsodilo Resources Company

25th January 2023

Local diamond and metal exploration company Tsodilo Resources Limited has negotiated a non-brokered private placement of 2,200, 914 units of the company at a price per unit of 0.20 US Dollars, which will provide gross proceeds to the company in the amount of C$440, 188. 20.

According to a statement from the group, proceeds from the private placement will be used for the betterment of the Xaudum iron formation project in Botswana and general corporate purposes.

The statement says every unit of the company will consist of a common share in the capital of the company and one Common Share purchase warrant of the company.

Each warrant will enable a holder to make a single purchase for the period of 24 months at an amount of $0.20. As per regularity requirements, the group indicates that the common shares and warrants will be subject to a four month plus a day hold period from date of closure.

Tsodilo is exempt from the formal valuation and minority shareholder approval requirements. This is for the reason that the fair market value of the private placement, insofar as it involves the director, is not more than 25% of the company’s market capitalization.

Tsodilo Resources Limited is an international diamond and metals exploration company engaged in the search for economic diamond and metal deposits at its Bosoto Limited and Gcwihaba Resources projects in Botswana.  The company has a 100% stake in Bosoto which holds the BK16 kimberlite project in the Orapa Kimberlite Field (OKF) in Botswana.

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