Market Intelligence

Brewers engage in Game of Thrones as competition heightens


October 16, 2017 | 5:09 pm
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There is a turf war among the three major brewers in the country as they battle each other to increase their footprint across the country.

Who will sit in the Iron Throne and emerge King Brewer?

According to Investment house CSL Research, minority shareholders will most likely  approve Aheuser-Busch InBev’s (AB Inbev) proposed tie-up of its publicly-listed Nigerian subsidiary-International Breweries (Under Review) with its two other subsidiaries, Intafact Beverages (Not Listed) and Pabod Breweries (Not Listed) at a court-ordered meeting scheduled for this week.

This means Nigerian Breweries (NB) Plc and Guinness Nigeria Plc should brace for intense competition as peer rivals could enjoy key synergises from the merger that includes improved margins, cost optimization, strong balance sheet and favourable working capital position.

Perhaps more worrisome is the fact that AB Inbev’s, new combined entities are better positioned to weather the storm of macroeconomic headwinds, which puts NB and Guinness in a cutting edge.

Suffice to note that AB Inbev’s well diversified revenue stream makes it easy for the brewer to consolidate its position in the market post-merger.

For instance, Trophy Larger Beer, produced by SAB Miller, is a premium brand in the South West part of the region while Hero, produced by Intafact, is increasingly making in road in the South East.

AB Inbev indirectly owns at least 75 percent of these companies through recently-acquired interest in Africa’s largest brewer, SAB Miller.

Proposed ownership Structure Post Merger

  Shareholders % of Holdings
SAB Miller Nigeria Holdings BV*   4,072,100,915.00 47%
Brauhaase International Management GMBH*   2,378,447,980.00 28%
Ministry of Finance Anambra State      407,321,264.00 5%
Net International      305,490,948.00 4%
Ministry of Finance Incorporated (Rivers State)      178,383,714.00 2%
Other   1,254,117,115.00 15%
Total   8,595,861,936.00 1

“We particularly believe the ability of the AB Inbev’s newly-combined entity to absorb inflationary pressures will become stronger relative to rivals,” said analysts at CSL Research Limited.

“Post-merger of AB Inbev Nigerian operations, however, any price increases implemented by NB and/or Guinness could potentially cost them not just sales volume losses (caused by falling demand), but also market share losses to SAB Miller,” said analysts at CSL

“More troubling for the other brewers, is AB Inbev’s possible gravitation towards price cuts as it sees ensuing margins improvements across its operations post-merger,” Said analysts at CSL

According to CSL, the combined entity’s issued shares outstanding post-merger will increase to 8.6 million, with AB Inbev controlling 75 percent.

Nigerian dominant brewers rode on the back of price increase in key product to jerk up sales, which impacted positively on bottom line (profit).

Such price increment is necessary, as rising costs are a threat to margins.

For the first six months through June 2017, Nigerian Breweries’ net income spiked by 24.60 percent to N23.75 billion while sales was up 15.02 percent to N181.07 billion, thanks to price increase across key product.

NB has total liabilities of N116.18 billion in the balance sheet while finance costs reduced by 38.65 percent to N5.34 billion in June 2017 from N8.64 billion the previous year. Gearing ratio, otherwise known as capitalization ratio, increased to 57.63 percent in the period under review from 56.41 percent the previous year.

Guinness posted a profit after tax of N1.92 billion in the second quarter, from a loss position of N2.01 billion, while sales spiked by 23.47 percent to N125.91 billion the same period.

Guinness has total liabilities of N103.09 billion in the balance sheet while finance cost increased by 22.16 percent to N9.77 billion as June 2017.

Gearing ratio increased to 70.50 percent in June 2017 as against 69.89 percent the previous year.

International Breweries, local unit of SAB Miller, rebounded to the path of growth as it recorded a net income of N1.36 billion in June 2017 from a loss position of N1.65 billion the previous year.

International Breweries’ interest on borrowing reduced as finance costs dipped by 73 percent to N771 million while gearing ratio fell to 66.43 percent in the period as against 68.05 percent the previous year.

Analysts say AB Inbev’s investment strategy is to consolidate its position in the Nigerian market and challenge Nigerian Breweries and Guinness.

The largest brewer in the world, AB plans to establish $400 million mega plant in Nigeria as it continues to stamp its foothold in Africa’s most populous nation.

 Nigeria’s young population and rising middle class that crave for consumption is a boon for Fast Moving Consumable Goods Firms (FMCG).

According to the World Bank, Nigerian’s population is expected to hit 400 million, which means there will strong demand for Beer.

 “Streamlined operations, optimised use of combined resources, eliminated duplications, and cheaper funding are key synergies we expect that this merger will deliver. With margins expected to stage considerable improvements on the back of these synergies, we expect to see the combined entity emerging a stronger contender, further putting NB and Guinness on edge,” said analysts at CSL


October 16, 2017 | 5:09 pm
  |     |     |   Start Conversation

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