Namibia Breweries in discussion for possible disposal of minority stake in Heineken South Africa to parent company

NAMIBIA – Namibia’s leading beer maker Namibia Breweries Limited (NBL) has received an offer from Heineken NV to acquire its 25% shareholding in Heineken South Africa, which would be inter-conditional on the potential Distell transaction.

Earlier this year, the Dutch multinational brewing company Heineken, made its intention of entering new alcohol market categories of wine and spirits, with the acquisition of Distell, South Africa’s leading producer and maker of wines, ciders, spirit and ready-to-drink beverages.

The potential transaction, should it proceed, is subject to several conditions, one of which relates to NBL not making any distributions, including a dividend declaration, to its shareholders in respect of the financial year ended 30 June 2021.

In light of this, the NBL Board has taken a decision not to declare a final dividend for the financial year ended 30 June 2021.

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Shareholders were advised that there was no certainty that all the remaining aspects will be successfully resolved and agreed.

In the event that discussions regarding the potential transaction are terminated, the Board intends to declare a dividend in respect of the financial year ended 30 June 2021.

Offloading of its stake in Heineken SA will rid NBL one of its pains over the last few years, as the business has been making losses despite always returning solid inflow on royalties.

In the year ended June 2021, NBL earned over N$109 million (US$7.32m) in royalties from the same investment despite it pushing through an associate loss of N$73 million (US$4.9m).

In the last five years, the income from royalties recognised by NBL from the 25% investment was over N$496 million (US$33.31m), reports The Namibian.

Heineken South Africa experienced trade restrictions during the reporting period, which impacted volumes as well as royalties and resulted in a revenue decrease for NBL of 18.5% to N$1.386 billion (US$93m).

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Losses reported for the same five years amount to just over N$339 million (US$22.7m), and only in 2019 a N$450 million (US$30.2m) profit was realised.

This brings the net to a positive N$111 million (US$7.45m) over the five years, and shows the investment at least returned some benefit to the company despite the yearly losses in the past five years.

NBL reports 42.8% rise in profit on back of cost management strategy

According to the brewer’s financial update, its full year net revenue remained stagnant at N$2.649 billion (US$177.9m) compared to the previous year’s N$2.646 billion (US$177.7m).

Its 2021 beer volumes increased by 13% against 2020 while almost matching 2019 volumes.

During the period under review, its operating profit grew by 35.2% to N$613 million (US$41.17m), mainly attributed to its continued drive for cost effective sourcing, overall business cost management, innovative and flexible route-to-market as well as sales initiatives.

“This, together with continuous customer and consumer engagement, ensured resilient and improved earnings under challenging market conditions in most of our trading countries.

“Our Windhoek Draught brand has shown exceptional growth within our mainstream beer category taking the top position in NBL’s brand portfolio during 2021,” said NBL Managing Director (MD), Marco Wenk.

Its overall Profit after tax was N$373 million (US$25.05m), up by 42.8%

Beer volumes in Namibia for 2021 increased by 13 % against 2020, almost matching those achieved in 2019 – being only 2% lower in comparison.

Unfortunately, COVID-19 related alcohol bans and trade restrictions in South Africa (SA), adversely impacted NBL’s overall volume and profitability performance mainly due to significantly lower volumes sent to South Africa.

“As a result, Heineken SA was not able to order the full annual contracted volumes for the South African market, resulting in a shortfall.

“The shortfall was captured in a variation agreement which made provision for half of the shortfall to be paid to NBL in cash while the remaining half would be deferred and added to the production volumes to be sent to Heineken SA by 30 April 2022,” explained the MD.

Meanwhile, Tanzania once again emerged as NBL’s biggest export market and the local brewer also signed up a new distributor, with the transition contributing to a drop of 16% in overall export volumes against 2020 and a 7% decrease compared to 2019.

Wenk noted that Zambia remains a focus country and will be one of the major volume contributors going forward.

NBL further announced that strong cash flows were maintained during the year. Net cash flow from operating activities increased to N$544 million (US$36.53m) from N$24 million (US$1.61m) last year.

This was mainly due to the absence of any significant lockdown restrictions combined with cost saving initiatives, while a strong focus was placed on managing working capital.

Net cash outflow from investing activities of N$98 million (US$6.58m) was lower than the outflow of N$143 million (US$9.60m) in 2019/2020.

Wenk concluded, “We expect steady performance for our core portfolio in the F22, anchored by our Windhoek and Tafel branded beers.

“NBL will continue to focus on further growing existing brands while also innovating into new and exciting liquids based on consumer preferences and demand.”

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