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Nigerian Breweries Plc: No slowing down for Nigeria’s biggest brewer despite intense competition, shrinking consumer pockets

Nigerian Breweries Plc: No slowing down for Nigeria’s biggest brewer despite intense competition, shrinking consumer pockets
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Alcohol consumption is a big business in Nigeria with consumers spending just less than a quarter of a trillion naira in 2016. According to recent data released by the Nigerian Bureau of Statistics in 2016 alone, Nigerians spent at least N208 billion on alcohol consumption.

Research shows that beer consumption on the continent would grow 5percent Annual Growth Rate between 2015-2020 and by virtue of her population, which technically translates to higher volume and liters Nigeria  tops 10 biggest beer-drinking countries in Africa.

With more than half of Nigeria’s 190 million people aged under 30 — and the population expected to grow to 410 million by 2050, the prospect of the Nigerian market is not lost on major beer makers across the globe.

The last economic contraction the worst in 25 years left most Nigerian consumers poorer. Sadly, two years after the country exited recession, the economy is still stuttering leaving consumers to adjust their spending and shift to cheap drink substitutes.

Despite the myriad of challenges, Nigerian Breweries Plc (NB), Nigeria’s premier and largest brewer by market share is guarding its leadership of the market jealously amid mounting competition. The beer maker has also maintained a dividend payment to its shareholders in the last 12 years.

Since the launch of its first bottle of Star in 1946 from its Lagos brewery plant, NB Plc has undergone several optimization processes. It commissioned its second plant in Aba in 1957 and later the Kaduna Brewery plant in 1963. while Ibadan Brewery came on stream in 1982. In 1993, it acquired its fifth brewery in Enugu. A sixth brewery, sited at Ama-eke in 9th Mile, Enugu was commissioned in 2003.

Following increased activity in the Beer market in Nigeria which saw competitors expanding their plants and acquiring smaller plants, NB Plc in 2011 bought majority equity interests in Sona Systems Associates Business Management Limited, (Sona Systems) and Life Breweries company Limited from Heineken N.V.

This followed Heineken’s acquisition of controlling interests in five breweries in Nigeria from Sona Group in January 2011. Sona Systems’ two breweries in Ota and Kaduna, and Life Breweries in Onitsha have now become part of Nigerian Breweries Plc, together with the three brands: Goldberg lager, Malta Gold and Life Continental lager.

In 2014, the beer-maker of both Nigerian Breweries Plc and Consolidated Breweries Plc merge their operations bringing additional seven brands into Nigerian Breweries’ portfolio.

Bottomline impacted by harsh new excise duty

Analysis of the company’s recently released nine-month result for the period ended 30th September shows that gross revenue increased 2.7percent year-on-year this was however affected by higher excise duty expense compared to last year.

The new excise duty which came into effect on 4th June 2018 to help boost the federal government coffers imposed excise duty on beer and stout at .30 kobo per centiliter in 2018 and .35 kobo per cl each in 2019 and 2020. This translates to N30 per liter of beer in 2018 and N35 per liter in 2019 and 2020 respectively

During the period, operating expenses spiked 6.1percent, marketing and distribution expenses also increased 14.3percent as competition among other brands become more intense. The net finance cost stood at N2.9billion 141.5percent higher year-on-year, a 140.2% year-on-year increase in finance costs outweighed a 59.7% rise in finance income. And following its N30.00 billion commercial paper issuances in April NGN15.00 billion and June NGN15.00 billion, the balance of bank overdrafts and commercial papers is higher compared to Q3 2018 and Q4 2018.

Nigerian Breweries

Corporate Governance

The board of the company is headed by foremost chartered accountant, Kola Jamodu, a former minister of industries and a past President of the Manufacturers’ Association of Nigeria (MAN). As at February 2018, he owns 536 thousand units of shares.

Jordi Borrut Bel is the managing director/CEO He joined the Heineken N.V. group in 1997 as Sales Representative at Heineken Spain. From 1999 to 2006, he held various commercial positions and until his current appointment he was Managing Director, Brarudi, the Heineken operating company in Burundi.

Other members of the board include Omoigui Okauru, former executive chairman of the Federal Inland Revenue Service (FIRS) as at February 2019, she owns 29.9 thousand units of shares. Other members of the board include boardroom guru, Atedo Peterside, chairman of the committee that crafted the first corporate governance code for public companies in Nigeria. He is the chairman of Cadbury Nigeria Plc and also sits on the boards of Flour Mills of Nigeria Plc, Standard Bank Group Limited, The Standard Bank of South Africa Limited and Unilever Nigeria Plc.

Oluseyi Bickersteth a fellow of the Institute of Chartered Accountants of Nigeria (ICAN) and Chartered Institute of Taxation of Nigeria (CITN), a former Chairman of the KPMG Africa Practice and a former National Senior Partner of the Nigerian Practice. He is currently the Chairman of Andersen Tax, Africa and sits on the Board of other companies in Nigeria

Ndidi O. Nwuneli, partner at Sahel Capital, an advisory and private equity firm focused on the agribusiness sector in West Africa.

Faced with a double whammy

Faced with a double whammy of inflationary pressures and mounting excise duty, which has eaten deep into the bottomline of beer makers in the country, beer makers are faced with the dilemma of passing the cost to final consumers who are already battling with shrinking wallets or bear the cost for the meantime.

Plans by the federal government to implement the new minimum wage next year may however, force the beer maker to implement a new price regime. How this would be received by consumers who have taken solace in cheaper brands and traditional drinks remain to be seen.

NB remains bullish on leadership position

At its last media parley, revealed plans to regain its lost mojo and improve its topline. Among strategies mapped out include increase volumes on its key brands which have lost market share in the last three years, leverage smaller Can package and increase prices to match the cost pressures from excise duties.

The management also disclosed that its premium beer, Tiger drink launched in 2018 has gained acceptance and equally employed  a strategy for selling its stout brand particularly Legend Extra Stout through the introduction of 45cl bottles.

For its core brands Star, Gulder management revealed that it has lost some market share over the last three years. However, there are ongoing efforts to refresh these brands to reposition and grow volumes in Nigeria.

On contribution to margin, the lager segment currently contributes the most followed by Malt and Stout. In terms of local sourcing of materials, it currently sources c.58percent of its raw materials locally as at H1-19 and aims to reach 60percent local sourcing by FY-20.

For Nigerian Breweries, its biggest competitive advantages include national foortprints, wide array of brands which cut across lager, stouts and malts.

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