Namibia: Nambrew restructures to fend off SABMiller

Namibia Breweries (Nambrew) has launched a restructuring plan to beat down high overheads and an onslaught from global brewing giant and regional rival SABMiller. Nambrew's new managing director, Segun Adebanji, said the firm planned to more than double the pretax operating profit margin from 6 % by cutting production and distribution costs.

"Our target is, over time, to get operating profit to 14 percent. Our gross margin is also short of our benchmark," he said on June 28.

Since appointing Adebanji in March, the board has approved the closure of Namibia's second-biggest brewery in Swakopmund to concentrate brewing in the capital, Windhoek.

"After considering all options, we came to the conclusion that we couldn't sustain two breweries any longer." He said savings should outweigh related costs in less than three years.

The closure of the brewery and some depots, which is expected at the end of October, would result in the loss of about 130 of Nambrew's 650 jobs, but Adebanji said provisions for voluntary redundancy, retirement or reassignment should minimise the impact on staff.

Adebanji hopes to cut distribution costs and boost service by outsourcing logistics to a third party with parent conglomerate Ohlthaver & List, which owns Namibia's largest dairy chain and over a dozen supermarkets trading under the name of South Africa's Pick 'n Pay.

"Our products have to become more affordable if we are going to grow our volumes, so we have to get our costs down."

A major limitation to growth is the size of Nambrew's home market: Namibia has just 1.9 million people. "The domestic market is crucial for us, but on its own the size is too small to support the economies of scale required by an independent brewery. We expect growth to come from exports."

Efforts to secure an international future led to Dutch Heineken and British Guinness and spirits group Diageo buying an effective 28.9 percent of Nambrew in 2003, and Nambrew now brews Heineken beer for southern Africa.

The following year the three companies launched a joint sales, marketing and distribution arm in South Africa.

Adebanji said he had "no information to confirm or deny" speculation that Heineken might open a brewery in South Africa, which could rob Nambrew of the contract to brew Heineken beer.

A Heineken official said early last month the company was considering opening a brewery in South Africa ahead of the scheduled expiry of SABMiller's contract to brew and market Heineken's Amstel brand beer in South Africa in 2006.

Apart from costs, Nambrew is fighting a renewed challenge from its age-old rival SABMiller, whose original South African Breweries unit (SAB) is competing hard for market share in Nambrew's home market and in Angola, a vital export market.

Nambrew estimates it has 73 percent of the Namibian beer market, with most of the remainder going to SABMiller.

In March, Nambrew posted half-year revenue of N$525.4 million and operating profit of N$43.8 million. The Namibian dollar is pegged one to one with the rand.

In South Africa, by far the region's biggest beer market with 45 million people, SAB has about 98 percent of total beer sales, with Nambrew controlling barely a third of a premium segment accounting for just 7 percent of the total.

Adebanji said: "The elements of the SAB threat are to attack us in our own market from a secure base in South Africa using price, to deny us a base in South Africa, and to frustrate the joint venture in South Africa, which they obviously view as a major threat."

Savings on overheads and distribution costs would free up cash to promote Nambrew brands in its home market as well as South Africa and Angola to fight off the challenge, he said.

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