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Nigerian Breweries set to consolidate industry leadership

Nigerian Breweries set to consolidate industry leadership
November 19
18:09 2014

Nigerian Breweries is moving further in the direction of strategic acquisitions and investments that have enabled it to keep growing all segments of the brewed products market and maintain industry leadership. While the total brewed products market is slowing down, the company is able to gain market share and out-perform the market. The company’s management isn’t relenting in the investment drive and has reached an agreement with Consolidated Breweries Limited for a merger.

Mr. Nicolaas Vervelde, managing director/chief executive officer of Nigerian Breweries, achieved an accelerated profit growth in 2013 and is again likely to keep profit growing this year. At the end of the third quarter, he improved after tax profit by 11.3% to N29.83 billion year-on-year, from just 2.3% improvement in sales revenue. His secret to growing profit in a slowly moving market lies in the innovative measures he is taking to maintain market leadership, sustain stable revenue growth and improve profit margin.

Another big move in this direction has just been proposed, which is the merger with Consolidated Breweries Limited. If the proposal is approved by shareholders at a court ordered meeting on 4th December 2014, Nigerian Breweries will capture a larger share of the eastern market, which is held by Consolidated Breweries. It will become bigger in asset base by not less than N44.3 billion and will incorporate over N34 billion in sales revenue, which Consolidated Breweries reported at the end of 2013.

In his letter to shareholders recommending the merger proposal, Chief Kolawole Jamodu, chairman of the board of directors of Nigerian Breweries, said the aspiration of the board to sustain market leadership is the motivation for the merger. He considers the merger scheme an opportunity to further increase the capacity to build wealth for shareholders

Major cost savings are expected in the areas of interest expenses, distribution/administrative cost among other operating activities where duplication will be eliminated. Expenses such as annual general meetings, board of directors’ fees and communication expenses to shareholders will be reduced. This is in line with the low cost focus in the management’s market share campaign.  The company is presently working towards achieving 60% dependence on local raw materials by 2018.

A continuing gain in profit margin is Nigerian Breweries’ key strength in profit performance. The company improved net profit margin from 15.1% in 2012 to 16% in 2013. At the end of the third quarter of this year, net profit margin improved from 14.1% in the same period last year to 15.3%. Sustaining and improving the ability to convert revenue into profit is one of the key targets of the proposed merger scheme with Consolidated Breweries.

Economy of scale benefits are expected and synergies are anticipated, which are targeted at improving the overall operating efficiency and driving growth in shareholder value. Significant cost savings are expected from the consolidation of supply and distribution networks of both companies as a result of improved operational efficiencies arising from integrated operations. The enlarged product portfolio of Nigerian Breweries in the post merger trading will be manufactured through the combined operational capacities and marketed across the enlarged sales and distribution network of the two companies.

Nigerian Breweries is one of the companies to watch out for on the high earnings growth tracks this year and next. The proposed merger will give it not only an opportunity to build an expanded operating capacity but also the advantage of running it at a relatively lower operating cost than it is able to do presently. The company can therefore be expected to reinforce market leadership, achieve accelerated growth in sales revenue and expand profit capacity.

At the end of the third quarter, its management achieved an all-round cost moderation, which enabled it to improve profit margin and grow profit ahead of sales revenue. The favourable cost behaviour was led by interest expenses, which fell by 35.2% to N3.42 billion year-on-year. Distribution/administrative expenses also declined by 1.0% against the improvement of 2.3% in sales revenue and cost of sales grew at a slower pace than turnover at 1.9%.

Nigerian Breweries has grown sales revenue every year over the past five years, from N164.2 billion in 2009 to N268.61 billion in 2013. The company posted a turnover of N194.74 billion at the end of the third quarter. It has the most stable record in sales revenue performance in the brewing industry.

It grew profit by 13.2% to N43.08 billion in 2013 and if the 11.3% growth in the third quarter is sustained, a new profit high can be expected from the company at the end of the year. Profit growth rate however slowed down from the N23.87 billion the company reported in the second quarter. Except for a flat growth in 2012, the company has grown profit every year in the past five years.

The company earned N3.94 per share at the end of the third quarter against N3.54 in the corresponding period last year and N5.49 per share at the end of 2013. The merger scheme will involve the creation of 396,857,294 ordinary shares of 50 kobo each, which will raise issued shares to 7,960 million. A significant dilution of earnings per share is not expected. Except in 2012, when there was a drop in profit, Consolidated Breweries has earned well above Nigerian Breweries on per share basis in the past five years.


Earnings Records of Nigerian Breweries

2013 2012 2011 2010 2009
Turnover 268.61 252.67 230.12 185.86 164.21
After Tax Profit 43,080 30.04 38.02 30.33 27.91
EPS – N 5.70 5.03 5.03 4.01 3.69
Dividend per Share – N 3.0 3.0 1.25 2.40 3.69
Net Assets 112.36 93.45 78.30 50.17 46.57
Total Assets 252.76 253.63 216.37 114.39 106.99
Interim Dividend-N [Closure – 13-19/11/14] 125
NSE Closing Price 14/11/14 – N 162.17
Share Price Year-to-Date – % -3.4


Earnings Records of Consolidated Breweries

2013 2012 2011 2010 2009
Turnover 33.91 33.53 27.91 24.46 20.21
After Tax Profit 1.12 3.22 2.86 3.17 2.79
EPS – N 2.30 6.84 5.96 7.99 7.05
Dividend per Share – N 1.85 1.37 3.25 4.0 3.52
Net Assets 13.94 14.93 6.56 7.04 5.27
Total Assets 44.32 39.79 24.67 13.97 12.42




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