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South Africa: Overseas Groups Plan R4bn brewery
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Business Day (Johannesburg)
26 March 2008
Posted to the web 26 March 2008
Nicola Mawson
Johannesburg
MORE than R4bn in foreign investment will flow into SA in the next two years as Heineken, Diageo and Namibia Breweries form a new joint venture to construct a new brewery in Gauteng.
This announcement comes almost a year after Heineken revoked South African Breweries' (SAB's) licence to brew Amstel locally. Amstel, which accounted for 9% of total beer sales a year ago, is currently distributed locally by brandhouse.
The three international alcohol companies said yesterday that they would also form a new joint venture to market their beer and ready-to-drink brands in SA.
Heineken and Namibian Breweries-produced Windhoek are also marketed by brandhouse, a joint venture between the three companies that was established in 2004. Diageo's alcoholic coolers such as Smirnoff Spin are also marketed through brandhouse.
The new joint venture, intended as an extension of brandhouse's success, will market the beer and flavoured alcoholic beverages produced by each company, and its profits will be split between the three according to a contractual arrangement.
Spirits are expected to continue to be distributed and marketed through brandhouse, a cost-sharing venture in which each party benefits from sales of its brands.
Brandhouse boasts 40 brands such as Smirnoff, Johnnie Walker, J&B, Bell's, Windhoek, Heineken, Captain Morgan and Jose Cuervo.
Heineken and Diageo will each own 42,25% of the new joint venture, and Namibia Breweries will own 15,5%.
The deal formalises the arrangement and will see each party profit-sharing in proportion to its shareholding.
A new joint venture will be established to construct and operate a brewery in Gauteng, which will be 75% owned by Heineken, with Diageo holding a 25% stake.
Initially, the brewery will have a capacity of 3-million hectolitres, but its construction will allow for expansion. It will brew Heineken, Amstel and other brands within the joint venture stable.
The companies expect construction to start within three months, and the brewery is expected to be up and running by the end of next year.
Heineken will invest à260m in both the brewery and the marketing venture, while Diageo will invest £100m in the first two years.
Nick Blazquez, MD of Diageo Africa, said the new operation was key in growing its share of the beer and flavoured alcoholic beverage markets. "SA is an exciting country in which to do business and represents a great opportunity for brandhouse to further expand its premium brands."
Chris Gilmour, an analyst with Absa Asset Management Private Clients, said the companies would have about 21 months in which to build the brewery, which would produce the equivalent of about 12% of SAB's total output.
However, he expected the companies to battle to source building materials because of the construction boom, Gautrain and 2010 projects. There is also a cement shortage.
Gilmour also questioned whether the brewery would be supplied with sufficient electricity during construction and production. The last brewery built in SA in 1999 cost SAB R1bn and took 20 months to complete.
Heineken spokesman Vivi Hollertt said the company had not -- as yet -- been affected by power outages, but had incorporated generation capacity into its plans to reduce the effect of outages on production. She said the company was confident it would successfully construct the brewery by the end of next year.
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Heineken's president of Africa and Middle East, Tom de Man, said that "there is no better time to invest in growth".
Namibian Breweries chairman Sven Thieme said the deal gave it a tangible commercial interest in the sales and distribution of the brands that were part of the new profit-sharing venture.
The transaction is conditional on Competition Commission approval, and is expected to be finalised by the end of this month.
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