Economy

ANALYSIS: The Problem With International Breweries N165bn Rights Issue

Published

6 years ago

20/12/2019

By Dipo Olowookere

Not too long ago, the board of International Breweries announced that it plans to raise about N165 billion from its existing shareholders through rights issue.

According to board, proceeds from the exercise would be wholly used to refinance part of the N245 billion debts the brewery giant incurred from five local and foreign lending institutions; Citibank N.A, Zenith Bank, Standard Chartered Bank Nigeria, Stanbic IBTC and Rand Merchant Bank Nigeria.

Analysts at Meristem Research said if this exercise is 100 percent successful, the company’s debt burden should significantly reduce by 66 percent to about N81.90 billion, with the finance costs hovering between N5.5 billion and N6 billion in 2020.

But it noted that while this should be good news to shareholders of the firm, the bitter truth is that International Breweries has been operating at a loss since 2017 and that the N165 billion rights issue may have little impact on the overall performance of the company without a strategy to effectively cut costs.

“We note that the financing decision does not solve the operating problems of the company which is responsible for the poor margins,” the investment firm said in its report seen by Business Post.

It further said, “Costs have been high and hampering profits and if this persists, the company’s performance will not improve. Therefore, we believe that International Breweries’ current operating profile negatively affects its ability to deliver value to shareholders.”

“In addition, the potential dilution in earnings will erode the near-term benefits. We also expect that the company will require additional capital to boost its working capital needs, a measure that will not materialise with this issue.

“Hence, we expect it to raise debt in the near term or equities with the potential for more earnings dilution. We therefore do not expect the benefits of this financing decision to improve margins in the near-term,” the report also stated.

Giving an insight on the brewery giant’s performance, Meristem Research said before it became a subsidiary of AB InBev, the largest beer producer in the world, the brewer operated an average cost to sales of 55.12 percent, second to Nigerian Breweries at 52.88 percent, the cost leader in the industry.

However, since this deal was finalised, the firm has made consecutive losses, which worsened to N16.45 billion in 9M:2019, with cost to sales trending northwards at 60.75 percent in 2018FY, 64.42 percent in Q1:2019, reaching its highest point of 68.00 percent in 9M:2019 due to a spike in production costs- raw material costs and production staff salaries shot up by 27.99 percent and 45.22 percent respectively.

In addition, revenue has continued to decline despite initially rising after the completion of its new plant in Sagamu, Ogun State, which ranks as the second largest in Africa.

The turnover first grew YoY by 32.16 percent and 23.54 percent in Q1:2019 and Q2:2019 respectively, but went down by 5.32 percent to N28.63 billion in Q3:2019 from N30.24 billion in Q3:2018 as increased excise duties and competitive pressures constrained topline growth. Also, the firm’s depreciation charges rose in 9M:2019 by 31.54 percent YoY, contracting the gross margin to 32.00 percent (vs. 38.67 percent in 9M:2018).

It was noted that high operating costs has been another worrisome trend post-merger, a major factor for the thinning operating margin which turned negative in 9M:2019 at -11.25 percent, saying the firm has been expending higher costs on advertising (+36.10 percent in 9M:2019) as well as transportation and distribution expenses (up by 36.53 percent during the same period) in order to stay competitive.

“Apart from the high production and overhead costs pressuring margins, finance costs, which increased by 45.81 percent to N13.14 billion in 9M:2019, has been a drag on the company’s performance.

“Benefits can only accrue to shareholders if the company maintains a lid on costs, which seems to be slipping out of hand,” the report stated.

International Breweries, which controls 20.35 percent of the beer sector in Nigeria as at FY2018, is raising N165 billion by selling 18,266,206,614 units of shares on the basis of 17 new shares for every eight held by shareholders whose names were on the register of the company as at November 6, 2019 at N9.00 each.

Meristem Research, giving its verdict on the exercise based on the above issues it highlighted, declared that, “We do not recommend that shareholders take up their rights.”

Economy

Food Concepts Return NASD OTC Exchange to Danger Zone

Published

5 hours ago

05/12/2025

Adedapo Adesanya

By Adedapo Adesanya

Food Concepts Plc neutralized the gains recorded by three securities, returning the NASD Over-the-Counter (OTC) Securities Exchange into the negative territory with a 0.27 per cent loss on Thursday, December 4.

Yesterday, the share price of the parent company of Chicken Republic and PieXpress declined by 34 Kobo to sell at N3.15 per unit compared with the previous day’s N3.49 per unit.

This shrank the market capitalisation of the OTC bourse by N5.72 billion to N2.136 billion from N2.142 trillion and weakened the NASD Unlisted Security Index (NSI) by 9.57 points to 3,571.53 points from 3,581.10 points.

Business Post reports that Central Securities Clearing System (CSCS) Plc went down by 50 Kobo to N38.50 per share from N38.00 per share, FrieslandCampina Wamco Nigeria Plc gained 29 Kobo to sell at N55.79 per unit versus N55.50 per unit, and Geo-Fluids Plc added 5 Kobo to close at N4.60 per share compared with Wednesday’s closing price of N4.55 per share.

Trading data indicated that the volume of securities recorded at the session surged by 6,885.3 per cent to 4.3 million units from the 61,570 units posted a day earlier, the value of securities increased by 10,301.7 per cent to N947.2 million from N3.3 million, and the number of deals went up by 146.7 per cent to 37 deals from the 15 deals achieved in the previous trading session.

At the close of business, Infrastructure Credit Guarantee Company (InfraCredit) Plc was the most traded stock by value on a year-to-date basis with the sale of 5.8 billion units for N16.4 billion, trailed by Okitipupa Plc with 170.4 million units worth N8.0 billion, and Air Liquide Plc with 507.5 million units valued at N4.2 billion.

InfraCredit Plc also finished the session as the most traded stock by volume on a year-to-date basis with 5.8 billion units transacted for N16.4 billion, followed by Industrial and General Insurance (IGI) Plc with 1.2 billion units sold for N420.2 million, and Impresit Bakolori Plc with 536.9 million units traded for N524.9 million.

Economy

Investors Gain N97bn from Local Equity Market

Published

5 hours ago

05/12/2025

Dipo Olowookere

By Dipo Olowookere

The upward trend witnessed at the Nigerian Exchange (NGX) Limited in recent sessions continued on Thursday as it further improved by 0.10 per cent.

This was despite investor sentiment turning bearish after the local equity market ended with 23 price gainers and 28 price gainers, indicating a negative market breadth index.

UAC Nigeria gained 10.00 per cent to finish at N88.00, Morison Industries appreciated by 9.94 per cent to N3.54, Ecobank rose by 8.53 per cent to N36.90, and Coronation Insurance grew by 8.47 per cent to N2.56.

On the flip side, Ellah Lakes depreciated by 10.00 per cent to N13.14, Eunisell Nigeria also shed 10.00 per cent to finish at N72.90, Transcorp Hotels slipped by 9.95 per cent to N157.50, Omatek shrank by 9.23 per cent to N1.18, and Guinea Insurance dipped by 8.46 per cent to N1.19.

Yesterday, the All-Share Index (ASI) went up by 152.28 points to 145,476.15 points from 145,323.87 points and the market capitalisation chalked up N97 billion to finish at N92.726 trillion compared with the previous day’s N92.629 trillion.

Customs Street was bubbling with activities on Thursday, though the trading volume and value slightly went down, according to data.

A total of 1.9 billion stocks worth N19.2 billion exchanged hands in 23,369 deals during the session versus the N2.3 billion valued at N21.0 billion traded in 21,513 deals a day earlier.

This showed that the number of deals increased by 8.63 per cent, the volume of transactions depleted by 17.39 per cent, and the value of trades decreased by 8.57 per cent.

For another trading day, eTranzact led the activity chart with 1.6 billion units sold for N6.4 billion, Fidelity Bank traded 31.0 million units worth N589.3 million, GTCO exchanged 28.3 million units valued at N2.5 billion, Zenith Bank transacted 27.1 million units for N1.6 billion, and Ecobank traded 21.9 million units worth N744.3 million.

Economy

Naira Loses 18 Kobo Against Dollar at Official Market, N5 at Black Market

Published

6 hours ago

05/12/2025

Adedapo Adesanya

By Adedapo Adesanya

The Naira marginally depreciated against the United States Dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEM) on Thursday, December 4 amid renewed forex pressure associated with December.

At the official market yesterday, the Nigerian currency lost 0.01 per cent or 18 Kobo against the Dollar to close at N1,447.83/$1 compared with the previous day’s N1,447.65/$1.

It was not a different scenario with the local currency in the same market segment against the Pound Sterling as it further shed N15.43 to sell for N1,930.97/£1 versus Wednesday’s closing price of N1,925.08/£1 and declined against the Euro by 20 Kobo to finish at N1,688.74/€1 compared with the preceding session’s N1,688.54/€1.

Similarly, the Nigerian Naira lost N5 against the greenback in the black market to quote at N1,465/$1 compared with the previous day’s value of N1,460/$1 but closed flat against the Dollar at the GTBank FX counter at N1,453/$1.

Fluctuations in trading range is expected to continue during the festive season as traders expect the Nigerian currency to be stable, supported by intervention s by to the Central Bank of Nigeria (CBN)in the face of steady dollar demand.

Support is also expected in coming weeks as seasonal activities, particularly the stylised “Detty December” festivities, will see inflows that will give the Naira a boost after it depreciated mildly last month, according to a new report.

“As the festive Detty December season intensifies, inbound travel, tourism spending, and diaspora inflows are expected to provide moderate support for FX liquidity,” analysts at the research unit of FMDA said in its latest monthly report for November.

Traders cited by Reuters expect that the Naira will trade within a band of N1,443-N1,450 next week, buoyed by improved FX interventions by the apex bank.

Meanwhile, the crypto market was down as the US Federal Reserve’s preferred inflation gauge, core PCE, likely rose in September—moving in the wrong direction. However, volatility indices show no signs of major turbulence.

If the actual figure matches estimates, it would mark 55 straight months of inflation above the US central bank’s 2 per cent target. The sticky inflation would strengthen the hawkish policymakers, who are in favour of slower rate cuts.

Ripple (XRP) depreciated by 4.5 per cent to $2.08, Solana (SOL) went down by 3.8 per cent to $138.11, Litecoin (LTC) shrank by 3.1 per cent to $83.23, Dogecoin (DOGE) slid by 2.5 per cent to $0.1463, Cardano (ADA) declined by 2.1 per cent to $0.4368, Bitcoin (BTC) fell by 0.9 per cent to $91,975.45, Binance Coin (BNB) crumbled by 0.9 per cent to $899.41, and Ethereum (ETH) dropped by 0.7 per cent to $3,156.44, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) closed flat at $1.00 apiece.