LONDON (Reuters) - Brewing giant SABMiller SAB.L said Dutch brewer Heineken’s (HEIN.AS) termination of its South African subsidiary’s licence to manufacture and distribute Amstel Lager would cost it $80 million (41.5 million pounds) in annual profit.
SABMiller said on Tuesday that in the current financial year, on a pro-forma basis, it had expected Amstel to generate around $80 million in earnings before interest, tax and appreciation.
Amsterdam brewer Heineken will gain full rights immediately to its Amstel beer in South Africa, where the brand accounts for 9 percent of the national beer market, following a ruling in Heineken’s favour by the International Chamber of Commerce.
Heineken said on Monday it had decided to construct a brewery in South Africa — where SABMiller has a 98 percent share of the beer market — and until the new brewery is built, Amstel beer will be sourced from its breweries in Europe.
Analysts said the move will cut SABMiller’s earnings, allow a new competitor into South Africa and cut its growth rate in premium beers, while for Heineken a new brewery will take two-to-three years to complete and will suffer extra costs of importing beer.
Merril Lynch cut its SABMiller 2008 and 2009 estimated earnings per share by 2.5 percent to 129.3 U.S. cents and 146.1 cents respectively. Analysts at Barnard Jacobs Mellet cut the stock’s rating from “Overweight” to “Sell”.
SABMiller shares were down 3.35 percent at 10.97 pounds by 12:00 p.m., to be the FTSE 100 index’s biggest loser, while Heineken shares were off 0.4 percent at 37.25 euros.
“Strategically it is a major problem. They (SABMiller) are losing market share in the premium beer market in SA,” Investec Asset Management portfolio manager Rob Forsyth said. “It also gives its competitor, Brandhouse, a bigger share of the market with Heineken, Amstel and Windhoek brands.”
Heineken said Amstel would be marketed, sold and distributed in South Africa through Brandhouse Beverages (Pty) Ltd., the Cape Town-based joint venture between Heineken, Guinness-brewer Diageo (DGE.L) and Namibia Breweries.
It added that premium beers like Amstel in South Africa grew over 20 percent in 2006 in a national market up just 2 percent.
SABMiller said the termination followed an arbitration ruling that found its 2005 purchase of Bavaria in Colombia constituted a material change in shareholding of SABMiller, which could be regarded as detrimental to the interests of Heineken.
The London-based brewer of Miller Lite, Castle and Peroni beers said it expected Amstel to generate revenue of $300 million in the year to end-March 2007 and make around $80 million of earnings before interest, tax and appreciation.
Although the effect in the current year will be immaterial, the impact in the year to March 2008 is expected at $80 million of EBITA earnings, or 3 U.S. cents per SABMiller share.
SABMiller hopes to mitigate the Amstel loss by the growth of its premium beers in South Africa, such as Peroni, while as two-third of Amstel comes in returnable bottles SABMiller is likely to involved in distribution until the brewery is built.
In a separate statement, the group said it had sold its Pepsi franchise and an interest in a hotel and real estate development in Costa Rica for around $116 million.
Additional reporting by Ron Derby in Johannesburg and David Jones in London