SA Breweries (SAB) initially partnered up with Kwande Capital — the first black industrialists in the glass industry — four years ago to acquire Isanti Glass for R1.5bn from Nampak, as part of a bid to use the strength of its procurement to transform industries.
Business Day caught up with SAB CEO Richard Rivett-Carnac at the Roodekop factory for an update on the collaboration, which was designed to intensify localisation.
What has the hot seat been like, since your appointment in January 2022?
I’ve been CEO now for 18 months and it’s been good but it’s obviously a challenging market. The first year was good because it’s when we had come out of Covid-19 so we had a good year of recovery and stabilisation of the business following the lockdowns, with no bans in 2022, which helped the business a lot. This year has been tough, with demand undoubtedly off and the industry seeing an overall decline. It’s a function of what we are seeing in the market: high-interest rates, inflation and unemployment. All of those things ultimately detract from any kind of growth.
Tell us about the significance of the joint venture with Kwande Capital.
It’s about introducing SA to Isanti Glass, a partnership that SAB did with Shakes [Matiwaza] and Deon [Dhlomo], who are the black industrialists behind Kwande Capital. We partnered with them in the lead-up to acquiring Isanti Glass. It’s a transaction that I actually managed and led in my previous role before I was CEO and it really was about showing the market how big businesses like SAB can partner through using the strength of our procurement [and] our ability to spend large amounts of money over an extended period of time, to give long-term offtake agreements to our partners to help them raise funding. The Isanti Glass initiative is a strong example of a successful partnership that provides black-owned entities access to markets around the country.
How was the deal structured?
SAB and Kwande Capital provided the equity. In addition to that, we gave a 10-year offtake agreement so we contractually agreed for 10 years to buy all of the glass that is made available to us through the facility. On that agreement, it gave the lender — Standard Bank — the confidence to provide the remaining finance that was required to affect the transaction, which allowed Kwande Capital to acquire the facility from Nampak.
Nampak had been struggling for many years to make the glass facility work. They were looking to sell and so we saw it as a great opportunity for partnership. We bought going into Covid-19, so amid very tough times, but it really has worked out.
How lucrative is the glass market in SA?
The reality for the glass market is that it’s very localised. Importing empty bottles into SA is very expensive so for many years it has been a local market and it services what is a very big beverage industry across soft drinks, alcohol and others.
So the growth prospects really are internal — we need our own economy to grow — which it has been doing for many years but right now we are in a tough moment. If you take a long-term view, as we do, we really do believe in the future of SA and that the market will continue to grow. So the prospects are about being a world-class provider of glass.
What measures are in place to offset any environmental effects associated with glassmaking?
The beer industry in SA has been in returnable bottles in the main for many years and we will push that to remain so we use as little plastic as possible. The beautiful thing about glass coming out of this facility is that up to half of the raw material is in fact recycled glass that comes back into the facility, so it’s a very green way to provide liquid to the market in a container that ultimately gets recycled.
We have three glass furnaces at Isanti. They are facilities that run at incredible heat and they use a large amount of power so subsequently Isanti will use both electricity from the grid, as well as power generated from gas. You cannot ever turn a furnace off. So once it’s on it will remain that way for 24 hours a day over 10 years until it needs to be refurbished or rebuilt. So it’s a continuous process in terms of manufacturing the glass and producing the bottles. If you have an unplanned stop the furnace can actually freeze and sometimes it needs to be thrown away. You can put it on care and maintenance which uses less power but turning it off is not an option.
What is planned for the future for Isanti?
As the majority shareholders Kwande Capital are hoping to expand the facility to a fourth furnace as we now look at growth. Initially it was about stabilising what we acquired from Nampak, making sure the business is running efficiently but now it’s about expansion and growing our capability to service the market more and there’s a lot of work that is being done to ensure that we do that.
What is your outlook for both SA and the industry?
Right now we are in a tough moment, with demand just not isn’t there. The industry is contracting but long term the outlook is really good.
The reality is that we still have a very big economy and there are still a lot of people in SA and even more coming into the legal drinking age.
I passionately believe we are going to turn the corner in terms of power supply and things that will kick-start the economy.
SAB has announced almost R12bn of investment in the country for two consecutive years and we would not be making that investment if we didn’t believe in the long-term prospects for the country. But we are all going to have to knuckle down and work through a difficult period until we get there.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.