Advertise with

KBL faces uncertain future, potential move to South Africa
KBL faces uncertain future, potential move to South Africa

KBL faces uncertain future, potential move to South Africa

MARKETING NEWS - Feb 24th 2014, 11:04

Local Batswana beverages giant, Kgalagadi Breweries Limited (KBL), is understood to have reached a tipping point in its struggles with the rising alcohol levy and tough beer regulations, with reports that further levy adjustments could force a relocation to South Africa. 

Of late Sechaba Brewery Holdings, which holds 60% equity in the Kgalagadi Breweries group, has been the subject of intense market speculation following its shock announcement last December that it was weighing a Botswana Stock Exchange delisting.

Earlier this month market insiders told BusinessWeek that KBL executives had already intimated that an increase to the alcohol levy, which currently stands at 50%, could trigger sustainability issues and force the 37-year-old group to drastic measures.

"Executives are saying an alcohol levy level between 55 and 60% could force them out of the country due to sustainability issues,” an insider close to the latest developments revealed.

“The potential delisting from the BSE would be the first step towards exiting from the country. The delisting is also designed to be a shock move intended to show authorities that relocation is a possibility.”

It is understood that under the relocation scenario, KBL manufacturing would move to South Africa, with a distribution division remaining to service the Botswana market. The majority of the group’s workforce of close to 1,000 is employed in production, with distribution partly outsourced as part of empowerment schemes.

By last year, the KBL group had four traditional beer breweries, a clear beer brewery, a sparkling soft drinks production plant and six sales and distribution depots.

Other market watchers said the announcements on possible delisting were designed to apply pressure on authorities against further increases in the levy, which has risen almost annually each November since its introduction in 2008. The analysts told BusinessWeek that an exit from Botswana would likely take the form of SABMiller Africa BV making a bid for the shares in Sechaba it presently does not control.

By last year, SABMiller Africa BV owned about 17% of Sechaba, while its sister subsidiary, SABMiller Botswana BV owned 40% of the KBL group. SABMiller Plc, the multi-billion Pula mega-group based in London, holds controlling equity in the sister subsidiaries.

“You would expect SABMiller to move to take over the shares in Sechaba it does not presently own, with an offer representing a premium on the trading price,” another market commentator told BusinessWeek.

"The board would recommend approval or rejection of the takeover to shareholders, who would then vote at some point.

“The challenge is that Sechaba is dominated by large institutional investors, including the Botswana Development Corporation, who can fight a takeover and even counter it with a buy-out effort.

"Unlike retail investors who tend to be easily persuaded, institutional shareholders have top financial, legal and brokerage advisers who may see an upside to holding on to Sechaba”

The fact that Sechaba was among the BSE’s biggest gainers last year and also among the highest traded stocks, would also influence take-over talks. “SABMiller would have to convince the targeted shareholders that it is in their best interest to cede control, as the business is becoming unsustainable and is one major levy increase away from failure,” the commentator said. Earlier last month, KBL group managing director, Johan DeKok, painted a gloomy picture of the beverage giant’s future.

“The business has already had to downscale both on the clear beer and sorghum beer side, due to the combination of the levy and traditional regulations,” he said in a written response to enquiries.

“Our elasticity models indicate that for every one percent increase in real terms we lose a negative one percent in volumes.

“Up to now we have been protecting the business by growing the non-alcoholic brands, but there is a limit to this and its not sustainable.

“The beer side has been helped by market share recovery, without which we would probably have been forced to close already.

“However this recovery is also not open ended.”

The group’s last financial statements, for the six months ended September 30, 2013, continued the downtrend in clear and traditional beer volumes, although profits were supported by production cost savings, among other factors.

The year up to March 31, 2013, KBL group’s alcoholic volumes fell 13% year on year, and by a further eight percent in the six months to September 30, 2013.

Earlier in the month, BSE CEO, Hiran Mendis told BusinessWeek that Sechaba was yet to approach the local exchange on any of the latest developments regarding its listing.

“Any delisting, whatever the company, is not something that we would want,” he said.

“Any delisting has a negative connotation to it. Companies look at their listing from a strategic point of view and what the exchange can do is see how to make their lives easier and how to make the exchange relevant to their commercial requirements.

“We have to make the exchange of strategic importance to companies but we cannot stop them from delisting.” Mendis said in terms of access to capital, the stock exchange held an advantage over other financial institutions, as it offered companies the ability to continuously value themselves.

The market is eagerly awaiting the May release of the KBL group’s annual results for the period ended 31 March 2014, for pointers as to the direction the beverage giant will take.


Related News

Regulation of online and mobile gambling in Africa must gather pace
29/10/2019 - 10:20
The gambling industry in Africa has been busy recently following the ICE Africa and Big African Summit events. These explored the current state of legal gambling within the continent and included conferences by established industry professionals.

Pick n Pay unveils its revamped "On Nicol" flagship store
18/10/2019 - 10:59
Pick n Pay’s flagship store On Nicol officially welcomed customers after a comprehensive revamp. The refurbished store has an exciting array of new offerings with the very best in retail concepts developed in South Africa and from around the world. Customers can expect an enhanced fresh food experience, a huge focus on product quality, a much-improved range, innovative third-party services, and refreshed customer service.

AB InBev revives its offering for Apac in Hong Kong
01/10/2019 - 11:39
Anheuser-Busch InBev (AB InBev) has revived its failed initial public offering (IPO) in Hong Kong by offering 1.26 billion shares of a minority stake of its Asia Pacific subsidiary, Budweiser Brewing Company Apac, and the world’s largest brewer is hoping to raise $5 billion (R74.4bn) on listing.

Distell waits for tribunal ruling
16/09/2019 - 10:03
Local alcoholic beverages company, Distell Limited, will have to wait for the Competition Tribunal’s decision whether or not global beer brewer Anheuser-Busch (AB) InBev and SABMiller plc (SAB) have breached their merger conditions by striking exclusive deals with outlets.

Distell and AB Inbev square off in booze showdown
13/09/2019 - 10:28
Exclusive branding arrangements with liquor outlets and agreements with sports stadiums took centre stage at Competition Tribunal hearings on Thursday, into Distell's accusation that Anheuser-Busch InBev (AB InBev) is contravening the conditions of its 2016 merger with SABMiller.