These are not the best of times for major beer makers in the country as the effect of sluggish economy and mounting competition further contracted margins
The woes of brewers were further compounded by higher energy costs, decrepitating infrastructure, which has sent the cost of goods sales skyrocketing and with brewers still unable to fully transfer the cost burden to already cash-strapped consumers
Evidently, amid a broader stock market rout during the year, all brewery stocks are among the worst-performing stocks on the nation’s bourse (YTD) from January to December 30th. In ascending order, International Breweries, Guinness, Champion, Nigerian Breweries have shed 68.85percent, 58.26percent, 53.27percent and 32.22percent respectively.
Guinness and International Breweries recorded losses of N370.15 million and N16.44 billion in the first nine months of the year, while Nigerian Breweries saw a 17.01 percent drop in net income, as margins continue to deteriorate.
Amid an uninspiring performance of beer makers during the year, Nigerian Brewery Plc, the nation’s biggest brewer by market size offers a glimpse of steller performance especially in the premium segment.
Analyst at Cordros Securities believe that going forward, amid higher selling prices and improved volumes, NB can deliver above-target high single-digit (HSD) EPS growth in the medium term and a stronger Free Cash Flow generation.
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A company’s FCF is the cash left over after a company pays for its operating expenses and capital expenditures
NB, in November 2019, increased crate prices to distributors of its premium brands Heineken and Legend each by NGN50, and on 33 Export, a mainstream brand by NGN100.
GUINNESS also followed suit, increasing the price of Guinness Foreign Extra (Premium) by NGN50 This is a welcome development, as this is needed in order to compensate for rising excise costs and weaker volumes.
The premium segment refers to a section of a company`s brands or products that carry tangible or imaginary surplus-value in the upper mid- to high price range.
There has been increased activity in the premium segment; it has also witnessed a double-digit growth. Consumers in the premium segment are not as price-sensitive, relative to the mainstream and value customers.
According to analyst, upward adjustments on electricity tariffs next year, increase in VAT, and the land border closures, provide scope for renewed inflationary pressures.
For Diageo-owned Guinness, the company kicked off its fiscal year Q1 2020 with its first after-tax loss in eleven quarters.
Guinness has continued to lose market share in the brewery space, however, Spirit business has continued to perform strongly amid a challenging environment.
Spirits sales make up 17percent-18percent of revenue, with a medium-term target of 25percent-30percent by the management. The spirits growth has not been sufficient to cover the decline in the lager and RTD and significantly cushion the decline in gross margins, especially with higher excise duties impact net revenue. Nigerian Distilleries and Intercontinental Distilleries Ltd are the biggest spirit makers in the country.
International Breweries has also continued to disrupt the beer market after the introduction of its premium brand into the market. International Breweries may continue to struggle as it has a debt load of ofN243.82 billion as at September 2019, which is 13 times higher than total equity of N18.17 billion, as it a step away from technical insolvency.
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