Modupe Gbadeyanka
By Modupe Gbadeyanka
One of the leading brewery firms in the country, Nigerian Breweries Plc, has commenced issuance of a N8 billion Series 15 Commercial Paper (CP) under its N100 billion CP programme launched in 2015.
The N8 billion notes have 91 days tenor and the offer started on Thursday, July 12, 2018, and will close on Tuesday, July 17, 2018.
The programme is expected to complement the company’s other sources of working capital, while diversifying funding sources to include non-bank investors.
Additionally, the programme will improve the company’s ability to periodically access funding at rates mirroring the money market.
“They are using this launch which is the 15th series for expansion to finance working capital. They have a big competitor in the likes of International Breweries who also are doing a lot of expansion,” said Dolapo Ashiru, a financial analyst.
According to Business Day, Nigerian Breweries, in its 2017 financial statement, reported a five-year compound annual growth rate (CAGR) of 6.4 percent in revenue, driven by business acquisitions, introduction of new products, and more recently, price inflation.
In the same period, increase in the cost of raw materials and consumables as well as down trading, amongst others pressured NB’s margins. Nonetheless, the Company posted a good operating profit margin of 15.9 percent, return on assets of 13.3 percent and return on equity of 26.1 percent in 2017.
The Nigerian economy suffered a severe slowdown through 2016 and much of 2017, owing to sustained low global crude oil prices. This led to heightened economic uncertainty, which was worsened by the devaluation of the Naira.
However, the economy appears to have rebounded from recession, as the real Gross Domestic Products (GDP) growth rate registered at 0.8 percent in 2017, compared to a 1.5 percent decline in 2016.
The brewing industry is one of the major sectors within the Nigerian Food, Beverages and Tobacco division. The sector has witnessed various forms of transformation over the years, with the number of players spiking from less than five (5) in 1970 to over thirty (30) in 1980.
However, operational and economic challenges in the early 1980 led to the closure of some breweries. Currently, there are over ten brewery companies, of which five (NB, Guinness, Champion Breweries, International Breweries and Golden Guinea Breweries) are listed on the NSE. NB and Guinness dominate the industry, controlling over 60 percent and 19 percent market share respectively, based on industry sources.
In line with the capital intensive nature of NB’s business, fixed assets have historically accounted for over 70 percent of total assets. These assets have primarily been funded through equity, whilst the high working capital requirement has been covered through various debt instruments and payables.
Nigerian Breweries ‘principal activities involve the brewing, marketing and sale of lager, stout, non-alcoholic malt drinks and soft drinks, from which the Company derives its revenue. Nigerian Breweries’ primary geographical market is Nigeria, accounting for 99.9 percent of its sales in 2017.
