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Ingwebu Breweries in trouble

by Staff reporter
05 Feb 2017 at 07:27hrs | Views

THE Bulawayo Municipal Commercial Undertaking-run Ingwebu Breweries has been thrown into turmoil amid revelations that the brewery is on the brink of collapse due to alleged mismanagement and corruption levelled against the management.

Due to the problems being faced at the brewery company — the Bulawayo City Council, which is the sole shareholder — had to engage auditors to investigate the reasons behind the impending downfall of the company.

According to a council confidential report the auditors; PNA Chartered Accountants presented a damning report which recommended the total overhaul of the company inclusive of privatising it to protect the local authority. The report revealed that some of the challenges faced by the company were poor financial receipts and payment mechanisms, poor hygiene and packaging, unavailability of the product, deteriorated taste, quality and consistency, lack of diversity, low shelf life and high prices due to inefficient production processes.

As a result of the deteriorating state of the brewery it has been revealed that if the council ever considers selling the company, it would cost $5,6 million.

"The study had revealed that Ingwebu Breweries was failing to reach its production capacity of 22 brews per day, with the highest in 2014 of 14 brews. The market was under-supplied, judging by long queues at distribution points. The major problem was the inability to distribute the product on time before it went bad.

"Ingwebu Breweries did not take customer orders but, instead, supplied what was available in delivery trucks. As such, sales were being incorrectly assessed on what was sold and not what the customer wanted," reads the report.

The report further read that Ingwebu was producing an inferior product which had a negative effect on sales.

"Ingwebu is an inferior good, a product that appeals to the unemployed and low-income people. The foreseeable problem, therefore, was that a rise in incomes would have a negative impact on Ingwebu sales. The studies revealed that a typical Ingwebu client is; Ndebele speaking, married, male, belongs to the lower income groups of society and usually unemployed, if employed, he is found in the handy crafts industry.

"In terms of market share, it might not be possible to extend Ingwebu Breweries' market from regional to national owing to the fact that culture also plays a part in taste preferences. This is evidenced by Delta's failure to penetrate Ingwebu Breweries' 10 percent market share," reads the report.

In terms of the payroll it was discovered that payroll expenses constituted 40 percent of sales against the set standard of 25 percent. Further it was revealed that the brewery was operating at a loss because they had to hire vehicles for their distribution.

"Ingwebu Breweries continued to make losses and the losses were getting bigger and bigger. The problems required urgent attention, so as to protect the City of Bulawayo. In the three quarters ending in September 2016, a total net loss of $1 960 339 was suffered.

"An analysis of Ingwebu Breweries' financial records revealed that current liabilities were higher than current assets and, contributing to high current liabilities, were bank overdrafts. The company's working capital policy of higher trade receivables than trade payables with minimal inventory held was not being adhered to.

"Losses were attributed to high expenses, the major expense being the payroll. Other expenses were selling and distribution costs, water, electricity and repairs and maintenance. The total debt to assets ratio had increased as Ingwebu Breweries kept accumulating liabilities without significant investment in assets. Financial costs had resulted in decreased profits," reads the report.

Among the recommendations put forward by the auditors, which were adopted by the local authority it was resolved that the brewery be privatised and there be a reduction of all labour costs.

"There was a need to change the board of directors, as the board lacked two vital skills — a lawyer and a chartered accountant.

The ages of the board members also needed to be considered. There is also a need to change key management. A tried and tested breed of management was required. Because of the size of Ingwebu's competitor, the entity required people that fight.

"Current managing director to be engaged as a consultant as and when required to aid the transition process. Senior members of staff to have relevant and requisite qualifications. If not retrench and replace with qualified personnel," reads the report.

The current board will be given six months as board members to allow smooth transition while the new board will be — together with the new management — given performance-based contracts. In the new privatised Ingwebu, residents will be able to purchase shares in the company. The brewery's managing director is Mr Prince Ndlovu.

Five years ago the BMCU-run brewery was dogged by a number of problems with 16 of the council beer halls closed for allegedly incurring losses, while cattle at its Aiselby Farm were disappearing under unclear circumstances. Irked by the closure of the beer halls the council reacted by replacing the entire board running operations within the company.

Source - sundaynews