Nigerian Breweries Plc is currently in the market for its N600 billion capital raising through a rights issue which it plans to clear its N500 billion foreign exchange (FX) debt. The biggest brewer in Nigeria has been battling foreign exchange (FX) losses, as the country continues to struggle with dollar scarcity.
“The tough business landscape characterised by double-digit inflation rates, naira devaluation, FX challenges, and diminished consumer spend has taken its toll on many businesses, including ours,” said Hans Essaadi, managing director/chief executive officer, Nigerian Breweries Plc when the company obtained the approval of the Securities and Exchange Commission (SEC) to commence its Rights Issue of 22,607,491,232 Ordinary Shares of N0.50 each at N26.50 per share.
“Nigerian Breweries Plc has faced considerable challenges, including rising cost pressures, mounting debt, and increased foreign exchange (FX) losses. However, this Rights Issue is expected to provide much-needed relief by enabling the company to settle its FX-denominated debt, enhance its capital structure, and improve overall operational efficiency.
“This strategic move is anticipated to help the company stabilise financially and position the company for long-term growth amidst challenging market conditions,” said Lagos-based Meristem research analysts in their September 6 note to investors.
The rights issue which opened for subscription on Monday September 2 closes on Friday, October 11 2024. The shares are being offered to existing shareholders on the basis of 11 new Ordinary Shares for every 5 ordinary shares held as at July 12, 2024, being the qualifying date.
The Right Issue is part of Nigerian Breweries’ business recovery plan to strengthen the Company’s capital base by deleveraging its balance sheet, eliminating certain FX-related exposures and reducing bank borrowings, thereby giving the brewer greater financial flexibility to promote business growth and continuity,
Half year topline growth fails to stem declining bottom-line
Nigerian Breweries Plc in its unaudited and provisional results for the half year (six months) ended June 30, 2024 reported Loss After Tax (LAT) of N85.199billion as against LAT of N47.599billion in H1 of 2023, representing an increase by 79 percent. Though, the brewer’s group revenue grew by 72.9 percent to N479.767billion from N277.419billion in H1’2023, its net finance expense spiked by 60.5percent to N154.480billion from N96.223billion.
Oluebube Nwosu, equity research analyst at Lagos-based Vetiva in their August 7 commentary on Nigerian Breweries result titled “Topline surges, FX losses taper in Q2” asked investors to buy the stock, saying their target price is N31.42 as against then price of N26.40 per share.
“For the full year, Nigerian Breweries is expected to continue leveraging its strong market position and higher pricing to drive revenue growth. The company plans to address inflationary pressures and forex challenges through cost-saving initiatives and efficiency improvements. However, rising operating expenses and financial costs are anticipated to remain significant challenges,” the Vetiva analysts noted.
Nigerian Breweries Plc is the largest brewer in Nigeria. Following the merger with Consolidated Breweries effective December 2014, parent company, Heineken maintains a 52 percent controlling stake in the larger entity. Nigerian Breweries still dominates Nigeria’s brewery market with about 60 percent market share and a brand portfolio that includes lager beer, stout beer, non-alcoholic malt drinks, carbonated soft drinks and ready-to-drink brand.
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“In second quarter (Q2) of 2024, Nigerian Breweries, Nigeria’s brewery market leader, recorded a 64 percent year-on-year (y/y) revenue increase to N252.6 billion, driven by higher pricing amid portfolio optimisation. However, gross profit rose slower by 14 percent y/y to N77.8 billion in the same period, reflecting the company’s struggle to manage production costs due to inflationary pressures. Similarly, the company’s OPEX jumped by 57 percent y/y to N67 billion. Given these pressures, EBIT declined by 52 percent y/y to N12.9 billion. On the financing leg, net finance expenses declined by 17 percent y/y to N63.6 billion, primarily driven by the reduced impact of foreign exchange rate fluctuations on the company’s loan obligations. All in, Nigerian Breweries reported a net loss after tax of N33.1 billion in Q2’24, which was a slight moderation from the N36.6 billion loss recorded in Q2’23,” Vetiva analysts noted.
“For H1’24, Nigerian Breweries Plc achieved its highest-ever revenue for a six-month period, amounting to N479.8 billion, a 73 percent y/y increase. This impressive revenue growth was driven by sustained price increases. Gross profit for the period rose slower, by 42 percent y/y to N159.7 billion. Meanwhile, OPEX rose by 46 percent y/y to N124.2 billion, largely due to inflationary pressures. Thus, EBIT came in at N38.1 billion (+33 percent y/y).
“Moving ahead, net finance expenses surged by 61 percent y/y to N154.5 billion driven by elevated FX losses in Q1’24. As a result, the company reported a net loss after tax of N85.2 billion in H1’24 (H1’23: N47.3 billion). Capital raising exercise to support balance sheet. At the end of H1, NB recorded a net debt balance of N543.6 billion (FY’23: N302 billion), and an equity position of (N21.2 billion) (FY’23: N63.3 billion positive). The company aims to strengthen its balance sheet through its N600 billion rights issue. This effort is expected to improve the company’s financial stability and profitability in the long term,” the Vetiva analysts further noted.
Following the release of its half-year (H1) scorecards, the Company said it continues to navigate the challenging operating environment characterised by soaring inflation, exchange rate volatility, security challenges, elevated input costs, and rising cost of living.
Further look at the H1’24 financial result shows Nigerian Breweries Loss Before Tax (LBT) printed higher by 71.5 percent to N116.341billion from N67.844billion in H1’23. “Despite these headwinds, the Company has demonstrated resilience and is on the path to recovery in its operations. Revenue grew by 73percent in the half year compared to the same period in 2023. “The growth was driven by strategic pricing, innovation, volume and market recovery. Gross Profit grew by 42percent, although lower than the rate of growth in revenue, due to a 93percent increase in the cost of goods sold driven by currency devaluation and inflation,” Nigerian Breweries said in its earnings release.
Still conscious of challenging operating environment, double-digit inflation, pressured consumer income spending
Speaking on the result, Hans Essaadi, Managing Director/CEO, Nigerian Breweries Plc said, “In the 6 months ended 30 June 2024, Nigerian Breweries demonstrated resilience and is on the path to recovery as seen in the results delivered despite the challenging external environment characterized by high inflation and heightening operating costs.”
“Our revenue grew by 73percent in the half-year compared to the same period in 2023. The growth was driven by strategic pricing, innovation volume growth, and market recovery. Cost of sales, distribution, and admin expenses increased by 46percent, largely due to inflationary pressure and forex devaluation impacting imported materials. We also continue to invest behind our brands and categories and support the recovery of the market.”
Essaadi also disclosed that the company is in the process of initiating a Rights Issue to raise up to N600 billion in additional capital to restore the business to profitability and enhance operational and financial stability as part of its resilient and forward-thinking strategy.
“The funds raised will be used to eliminate our foreign exchange-denominated debts and reduce our local debts, thereby mitigating our exposure to the continuing economic challenges. Through our cost-saving and other efficiencies initiatives, we recorded a 34percent increase in operating profit, signalling the resilience and strength of our operations”, Essaadi explained.
“We are conscious of the continued challenging operating environment with double-digit inflation and pressured consumer income spending. However, we continue to focus on our strategy to deliver value to our shareholders while contributing to the country’s economic development”, he added.
“The Board remains confident in our long-term strategy to deliver value to our Shareholders and re-affirms the Company’s enduring commitment to Winning with Nigeria through people development, strategic innovation, operational efficiency, and community impact,” said Uaboi Agbebaku, legal director and company secretary, while speaking on behalf of the board of Nigerian Breweries.
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