December 2023

When will Diageo stop making negative headlines? Last month, Diageo’s shares fell as much as 16 percent in one day after it said it expected first-half operating profit growth to decline due to a “materially weaker performance” in Latin America and the Caribbean. Just as its stock was beginning to recover, the US news outlet, Axios, on 5 December, dropped the bomb that Diageo was planning to divest Smithwick’s, Harp and Kilkenny, and possibly Tusker, but would retain Guinness, its flagship brand. Reportedly, these assets are a “margin drag”. Diageo’s beer division contributed only 14 percent to group revenue in its past financial year, spirits 81 percent.

On the day the rumour spread across Ireland like wildfire, a tight-lipped Diageo said that it does not comment on market rumours. But, by evening, an obviously panicky Diageo rejected the report. There is probably no substance to this rumour. Otherwise, the whispering know-all would have leaked it to the Financial Times or the Wall Street Journal. Still the gossip seems to have caught Diageo’s PR honchos flat-footed, which is not a good sign.

We heard it on the grapevine that Signal Hill Products, the holding company for South Africa’s major craft brewer Devil’s Peak, is building a large cider production plant near Johannesburg. But only insiders would have known that Signal Hill was involved in Heineken’s divestment of its Strongbow brand in South Africa. Because when the regulators green-lighted the divestment in August, the announcement was buried among a slew of decisions by South Africa’s Competition Commission and apparently passed local media by.

In spring this year – and after a lengthy takeover process – South Africa’s regulators had okayed the acquisition of drinks group Distell by Heineken, on condition that Heineken divests of its local Strongbow business and brand to a licensee. Otherwise, Heineken would have controlled the sizeable domestic cider market (4 million hl in 2022) with brands including Strongbow, Savanna, and Hunter’s (both Distell). The regulators had also stipulated that the Strongbow licence should go to a firm with a majority shareholding by “historically disadvantaged persons (HDPs)”. Moreover, the divestiture should take the form of a perpetual, royalty-free licence for South Africa, Botswana, Eswatini, Lesotho, and Namibia.

Many had speculated that Devil’s Peak would make an ideal buyer of the Strongbow licence, but the technical details as to how it could fulfil the regulators’ HDP conditions, were unclear.

How to value a license? When Heineken divested the Strongbow licence in perpetuity at the behest of the regulators, no financial details were disclosed. This has not stopped pundits from wondering how much the buyer – Cider House Investments – would have had to fork out for the licence. Putting a price tag on a business for sale is an art not a science. In this case, matters are made more complicated by the fact that the business for sale is only a licence for a brand, which will be limited to certain markets, rather than full control. Usually, a value is established on the basis of the brand’s recent annual profits times x.

However, determining the “x” – the profit multiple – is dependent on several metrics, including: What is the brand’s growth profile? Can it be expected to hike sales for years to come? How is the category itself evolving? Is it still growing or approaching stagnation? Besides, how many competitors are there? Is the category fairly consolidated, or do newcomers stand a chance of disrupting the incumbents’ businesses? To better gauge the “x”, analysts will also look for precedents. Are there any transactions in the industry for comparison? That’s the theory. Alas, it ignores the buyer’s bargaining skills (potentially superb), and Heineken’s willingness to award the licence to one particular buyer with credentials of “historically disadvantaged persons, HDPs” (potentially high). This is to say that the transaction multiple could have been lower than 3.

A Swiss entrepreneur is shaking up Cameroon’s beer market. Eser Karatas’ brewery will come on stream before the year is out in the country’s largest city – Douala – with ambitious goals. When Eser Karatas, 39, a graduate in economics from the prestigious Swiss University of St Gallen, first came to Cameroon in 2012 on a project to launch a 4G network, he saw that his local colleagues loved beer, but always complained about the quality of the available products. He sought to change that. In the end it took him ten years – from first writing a business plan to finally brewing beer. As Mr Karatas will know, he is up against a formidable competitor: Société Anonyme des Boissons du Cameroun (SABC), which is a subsidiary of France’s Castel Group, itself the number two brewer in Africa, with 44 million hl of beer output in 2022, according to the Barth Report. Castel has beer and soft drink operations in 20 out of 56 African countries. It is here that the group realises annual revenues of EUR 5 billion (USD 5.4 billion). Cameroon has long been one of Castel’s most profitable markets, thanks to SABC’s monopoly. Its domination has been contested at various times, but with little success.

More mystery around Wagner’s alcohol business in the Central African Republic. Are the two events related?Russia has promised to donate 50,000 t of wheat to the CAR by year-end – most likely in an effort to loosen Wagner’s grip on the country. Meanwhile, media in the CAR reported the sighting of a large container in Cantonnier, a town some 600 km to the west of the capital on the border with Cameroon. The container arrived on 20 November with the words Wa Na Wa emblazoned on it. Wa Na Wa is a spirit produced by Wagner and sold in small sachets. According to the local newssite Corbeaunews, this arrival has given rise to palpable discontent among local traders, many of whom had been evicted by force to make room for whatever is inside the container. The contents of the container are unknown, but there is a rumour going round that the private military firm could build a brewery in Cantonnier. That does not seem likely. Wagner’s large brewery near Bangui, the capital, is running far below capacity. Observers estimate it is on track to produce some 12,000 hl beer this year.

That was quick. In agreement with Dutch Heineken, its Russian subsidiary United Heineken Breweries has changed its name to United Breweries Holding, Arnest’s CEO Alexey Sagal told Russian media on 5 December. The former Heineken unit will now be known under the acronym OPH. The brand’s logo has also been updated and redesigned in a minimalist style. Instead of the red star, the logo will feature brewing vessels, although the familiar green colour scheme will be retained. In August, Heineken sold its Russian assets to the Arnest Group for the symbolic price of 1 euro, while the buyer assumed the obligation to repay a debt of EUR 100 million (USD 108 million). Arnest is one of the largest manufacturers of cosmetics, household products, aerosol packaging and aluminium cans for beverages in Russia.

No buyer for Ringwood brewery: Carlsberg’s UK arm closes site. The Ringwood Brewery, on the Hampshire-Dorset border, which was put up for sale in June by owner Carlsberg Marston’s (CMBC), will close in January 2024. As CMBC failed to receive an offer that met its expectations, production of the Ringwood ale brands will be moved to other breweries within the CMBC network. The land will now be sold for another purpose. The Ringwood Brewery, with a staff of ten people, was founded independently in 1978, before being bought by Marston’s in 2007 for nearly GBP 20 million (USD 41 million). Carlsberg merged with Marston’s in 2020.

German government delays the legalisation of cannabis. A final vote on a bill to legalise cannabis that was initially planned for early December was called off amid concerns from leaders of the country’s Social Democratic Party (SPD). The SPD is in a coalition government with the Liberals and the Greens. The delay means that action on the landmark bill will be postponed until next year. Most likely, cannabis will be legalised on 1 April.