Namibia breweries deliver in spite of tough economy

In spite of a muted consumer demand which culminated in a decrease in sales volumes, Namibia Breweries gained operating profit, if the financial year 2018 results are anything to go by.

Operating profit went up by 0.34% while demand from South Africa remained strong and higher volumes than the minimum contracted were delivered to Sedibeng Brewery in Johannesburg. 

Turnover decreased by 0.8% to N$687m due to the decline in overall volumes sold. Operating expenses decreased by 1.14%.
A healthy profit attributable to shareholders of N$398 million was delivered – an increase of 24.9% over the prior year.

This was achieved through a combination of well managed operating expenses, higher finance income and lower financing costs as well as a significant decrease in the loss of an associate.

A total of N$96 million (2017: N$ 94 million) was earned in royalties from Heineken South Africa.

Comparing results with expectations, PSG Namibia said, “Revenue and EBIT growth of -0.8% and 0.3% came in below expectations of 2.5% and 3.4% due to a decline in beer sales.”

“EBIT margins, however, was right in line with expectations at 22.8%. Equity associate losses were also higher than expected at N$33m (PSG: NAD15m) but a marked improvement from the N$155m loss in 2017 and puts the company on the road to the expected breakeven at the end of 2018. Finance costs were in line with forecasts and cash balances were higher than expected.”

What were the most noteworthy areas in the results?
A special dividend of 193.67 cps which amounts to N$400million was declared.

The demand from South Africa remained strong, and higher volumes than the minimum contracted were delivered to Sedibeng Brewery in Johannesburg.
There were restatements of some 2017 figures because the treatment of losses in associate in determining the headline earnings was not in line with Circular 02/2017 issued by South African Institute of Charted Accountants ("SAICA").

Said PSG, “Management indicated that in the short term, the focus would be on growing volumes in South Africa, in partnership with Heineken, which is similar to previous comments. They are adding that they will explore longer-term opportunities to create a production footprint in one of the African export markets.”
PSG expects investors to be very happy about the dividends.

The special dividend drives up the dividend yield to 6.3% at the current share price.

“There will also be a collective sigh of relief as the losses in SA looks to have been stemmed, and the company is generating cash through Heineken and the royalties. Our target price and recommendation will be updated in due course,” PSG said.