Business News of 2014-05-29

Kasapreko finds antidote to foreign exchange losses

Kasapreko Company Limited (KCL) is making strategic investments in key sectors of its operations aimed at reducing dependence on imports while insulating the business from the foreign exchange (FX) losses that it has been battling for years.

Consequently, the company is committing a total of US$14 million to the production of ethanol and the setting up of a paper carton manufacturing subsidiary that would feed its bottling lines at Spintex in Accra.

Its Deputy Managing Director (DMD), Mr Kojo Nunoo, told the GRAPHIC BUSINESS on May 23 that out of the total investment package, US$7.5 is to be invested in the production of cassava which is a major source of ethanol from which alcohol is derived, while the remainder is being expended on the setting up of the paper carton subsidiary to produce cartons for the various lines.

Should the two investments come on stream fully, hopefully by mid-2015, Mr Nunoo said Kasapreko's general dependence on imports would reduce leading to a corresponding reduction in its exposure to FX fluctuations.

The cedi lost about 21.3 per cent of its value to the US Dollar in the first three months of this year and that led to a rise in the cost of operations of import-dependent businesses and the manufacturing sector in general.

Although that record depreciation of the cedi meant good news to exporters, including Kasapreko, which exports about half of its total production to Europe and the sub-regional market, its DMD said the company also suffered a fair share of losses arising from the general weakness of the currency.

Investment in Caltech Ventures,/B>

Kasapreko started operations some 25 years ago as a family venture specialising in the brewing of herbs-sourced liquor.

The company currently uses about 25 million litres of ethanol annually, majority of which is imported from Brazil.

The cost of that import ranges between US$17 million to US$20 million, Mr Nunoo said, citing performance and the time of contract, among others.

The decision to invest in local production of ethanol, he said, was to help cut down that bill.

He explained that the deal involved the purchase of a 40-per cent stake in Caltech Ventures, a specialised company in Ho in the Volta Region that processes cassava into ethanol, biodiesel, starch and flour. It was sealed in the middle of this month.

"The investment is staged; first is in the growth of the cassava, then later we import the processing equipment," Mr Nunoo said, adding that his outfit has done the initial payment.

The initiative is expected to give Kasapreko, which distils a range of bitters-based liquor for the local and export market, some three million litres of high quality grade ethanol by May, next year, the DMD said.

"What we are hoping to do is to scale up to nine million litres over a period of three years. If we are able to do that, then we will be on our way to halving our imports of ethanol and that will go a long way to reduce the FX exposure," he added.

Production of starch power

In addition to its core business of manufacturing paper cartons to feed the company's bottling lines, Mr Nunoo said the paper carton subsidiary would later go into the production of starch powder to be used in its factory.

"We are hoping it will come on stream next year”, he added.