Botswana’s premier breweries investment company, Sechaba Holding Limited this week reported contracted profits gathered during the trading year ended 31st December 2017. The company operates the country’s main beverages company, Kgalagadi Breweries Limited (KBL) with a 60 % shareholding.
According to the company’s 2017 annual report released on Wednesday, KBL which is the company’s sole investment, experienced significant decline of 4.73 percent in total beverages sales during the 12 month period that ended December 2017. This contraction 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 – that is both traditional and clear beer had a tough start to the year on the backdrop of a slow economic downturn and unfavorable weather worsened by Tropical Cyclone Dineo which hit Botswana and the region with floods during the months of February and March. This decline in beverage sales volume consequently shrunk KBL cash flow with the company registering a total of 12.2 % decline in Profits for the year as compared to the 12 month period ended 31 December 2016.
Sechaba Board Chairman, Thabo Matthews attributed the decline in the financial performance of the company to the current tough regulatory environment in which the company operates largely driven by the impact of the Alcohol Levy and Traditional Beer Regulations. “The regulatory environment continued to present very real challenges,” he noted. “The levy rate for alcohol content of 5% and less remained at 50%; and for alcohol content of above 5% is as it was at 55% for the year under review,” he said.
Matthews also underscored that changes made on the locally produced alcoholic beverages levy to include duty payable in terms of Customs and Excise Duty Act also impacted KBL business negatively. “This change had a significant impact to the financial results of the company as it was subjected to the industry mid trading year, without prior notification from regulatory authorities,” he said.
Zooming into KBL beverage performance per segment, signals are that the decline in Clear Beer sales of 2.7% was attributed to adverse performance of the Castle Lite 660ml as well as non-performance of convenience packs across all brands which posted results of 12.6% and 11% decreases respectively. Konrad Kaise, Sechaba Finance Director highlighted that the only positive recovery was posted by Carling Black Label brand with a positive result of 3.5% increase in sales compared to the year ended December 2016.
Under the Fruit Alcoholic Beverages category Sechaba reports that positive returns were gathered during the period under review. “This has been our fastest growing segment, consistently posting double-digit growth versus prior year and budget,” observed Johan De kok Group Managing Director.
De Kok noted that key performer brand was driven by Redds Vodka Lemon (RVL) which is gaining the position category captaincy. “This stellar performance placed KBL amongst the best in the region and for the first time within C17 strolling into pole position ahead of competitor brands. We intend and expect more from this category as we are still driving and gaining share in this segment of the market,” he said. The 7.6 % decline in the Traditional Alcoholic Beverages category registered as the most poorly performed segment during the period under review.
Sechaba reports that this subdued performance was further worsened by a much softer December which declined by 4% when compared with prior year. Sechaba MD noted that the pack performance of Traditional Beer category indicates that 1L and 2L packs were the hardest hit posting full year results of 10.1% and 6.6% decrease compared to the previous year. Non-alcoholic Beverages were also the hardest hit resulting in a full year negative outcome of 7.0% versus prior year.
The report indicates that returnable bottles, 300ml and 1250ml were rationed and delisted respectively exiting the year at 73.7% lower than prior year. “The cans had a very tough year as they battled being the least affordable offering with decreased volume of 15.3% when compared with prior year.” Reveals Sechaba
Sechaba Brewery Holdings Limited is an investment company listed on the Botswana Stock Exchange. 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 asset managers.
LIQUOR ACT UNDER REVIEW
Meanwhile the beverages and breweries industry parliament this week received a motion that seeks to amend the liquor Act. The Bill was tabled by Minister of Investment, Trade & Industry Honorable Bogolo Kenewendo. The bills seeks to amend amongst others liquor trading hours ,which is one the many changes that were introduced by former President Lt Gen Dr Seretse Khama Ian Khama.
The review of the liquor act is viewed by many as a brain child of Current President Mokgweetsi Masisi who observers note he is on a quest to undo many of Khama’s restrictive regulations. Reports from parliament indicate that the bill is receiving a significant backing from both opposition and ruling party law makers. The Alcohol Levy which companies in the beverages and liquor industry continue to report as a hindrance to business is also expected to be reviewed by parliament and cabinet with possibilities scraping it off or reducing it.
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”