SAB cancels another R2.5bn in capital investment, R5bn in total lost to the SA economy

South African Breweries (SAB) has cancelled a further R2.5bn of capital investment following the third ban on alcohol sales, bringing to R5bn the brewer’s cancelled capital expenditure in South Africa since alcohol sales bans were introduced in 2020.

At the height of the second ban on the sale of alcohol in August 2020, SAB announced the cancellation of R2.5bn worth of South African investments for its annual capital and infrastructure upgrade programmes. At the time, the brewer said it would place a further R2.5bn of planned expenditure earmarked for the 2021 financial year under review, pending greater policy and regulatory certainty.
Following the unexpected third ban on alcohol sales on 28 December 2020, which has been extended indefinitely, SAB has cancelled the R2.5bn of 2021 capital expenditure for its South African operations.
The cancelled investments for 2021 relate to upgrades to operating facilities, product innovation, operating systems, as well as the installation of new equipment at selected plants. This decision will impact on the profitability of and number of jobs created by the companies that would have worked with SAB to execute the capital investment plans.

SAB’s Vice President of Finance, Richard Rivett-Carnac said: “Whilst SAB supports all reasonable and responsible measures that curb the spread of the pandemic and save lives, including an earlier curfew to limit movement, reduced indoor and outdoor capacity at gatherings, measured alcohol restrictions by channel and heightened law enforcement, we strongly disagree with the introduction of yet another outright ban on the sale of alcohol. Given the material impact that this third ban on the sale of alcohol has on our business, and the possibility of further bans, we have no choice but to halt these investments for the foreseeable future.”

The alcohol industry continues to support over one million livelihoods throughout its value chain, across farming, retail, manufacturing, logistics and many SMMEs whose incomes are at stake due to the suspension of alcohol trading.

Rivett-Carnac says that allowing off-premises trading with restricted trading days and hours, coupled with an earlier curfew, would have been an effective way to support the healthcare system and mitigate the rapid transmission of the virus, while still preserving livelihoods and keeping the economy open. The learnings from the pandemic to date show that a strictly enforced curfew and the consequent reduction in mobility are effective tools available to drive down accidents and trauma presentations. An outright ban on the sale of alcohol is an extreme measure that should be reconsidered by Government, he says.

“Given the uncertain operating environment, the decision to reduce SAB’s capital expenditure and consequently its cash flow requirements, is a difficult decision to make at this time,” says Rivett-Carnac. “We will continue to knock on all available doors and engage with the South African government to find a way forward that is focused on saving lives and livelihoods alike.”
The latest investment cancellation is being applied as a means to help the business navigate the regulatory uncertainty, before having to consider more difficult measures.