A look at Delta’s catch: National Breweries of Zambia

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Kudzanai Sharara 
Zimbabwe’s beverages giant Delta Corporation, still working on keeping its soft drinks business, is now set to go regional through the acquisition of National Breweries of Zambia from its major shareholder AB InBev. While the deal seems more like AB InBev is looking at streamlining its operations under one roof, there is no doubt the other shareholders in Delta will now own a bigger and geographically diversified business.In a Press statement issued last week, Delta said it is finalising a transaction to acquire a controlling 70 percent stake in National Breweries Plc of Zambia. “The board is optimistic that the company will leverage on its over 60 years’ experience in the sorghum beer sector.  This investment opportunity fits well with the company’s multi-beverage strategy,” said Delta.National Breweries is Zambia’s leading brewer and distributor of opaque beer. The company operates from two plants, one in Kitwe and the recently upgraded one in Lusaka. Its production capacity is more than 3,6 million hectoliters. Natbrew’s Chibuku brand is the most popular opaque brand and commands approximately 60 percent of the market share for opaque beer. Chipolopolo and Chinika, among others are the prominent industry competitors. National Breweries recently closed three of its breweries and all its depots in an effort to restructure costs. On top of brewery closures, the company also conducted a successful voluntary separation exercise (retrenchments) which involved dialogue with key stakeholders including national and local unions and Government.The company now operates from just two plants, one in Kitwe and the new $30 million Chibuku plant in Lusaka, touted as the most modern Chibuku plant in Africa. The plant has the capacity to produce 1,5 million hectolitres of opaque beer with the option to expand to 2,5 million hectolitres. Overall, the company’s productive capacity is now more than 3,6 million hectoliters.Management believes the restructuring exercise and the improvement in operational efficiencies, has set the business on the right trajectory for profitable growth in the coming years. The restructuring exercise, however, resulted in once off costs which resulted in the company reporting an after tax loss of K45,8 million.Strong Margins 2011 2012 2013 2014 2015 2016Gross Margin 39.5 38.9 31.7 34.7 34 35.7EBITDA Margins 24.5 25 18.5 21.4 13.9 23.4Net Income Margin 14.3 14.3 9.6 11.8 7   National Breweries’ last set of results were, however, disappointing as the company posted an operating loss of K28,6 million kwacha. Management attributed the loss to increased sale of illegal bulk opaque from a number of large operators, increased sale of unregulated cheap spirits, and significant inflationary cost increases. Total opaque volumes declined by 37 percent on the prior year for the period.Unlike Delta, which literally does not have much competition in the opaque beer category, Natbrew is facing increased competition for Chibuku Super. Competitive pressures usually force down pricing that negatively impact profit margins. Reputation of Opaque beer under threat: Unregulated, illicit alcohol remains a key challenge for the business and the beverage industry as a whole. The company is struggling to achieve competitive pricing of its products in the face of selective implementation of SI No. 72 of 2012, by the responsible Local Councils across the country. The large scale and unregulated sale of sub-standard bulk opaque beer across the country makes it very hard for legitimate businesses such as Natbrew to compete on a level playing field.  Management said the poor quality of this product contributes significantly to alcohol related social ills, which ultimately further damages the reputation of the total opaque beer category.  The non-payment of tax by most of these entities also means that Government looks increasingly to the legitimate businesses to raise revenue.Management at the company is, however, working on having existing legislation enforced to stop this practice. Statutory Instrument No. 72 of 2012 – the Liquor Licensing (Intoxicating Liquor) (Quantities and Packaging) Regulation, 2012 — bans the production, transport and sale of alcohol in bulk containers. The Zambian government has, however, introduced a new “presumptive tax” on opaque beer, a move that is likely to discourage tax evasion and help promote compliance.

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