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

CSCS, Geo-Fluids, FrieslandCampina Lift NASD OTC Bourse by 0.62%

Published

1 day ago

13/12/2025

Adedapo Adesanya

By Adedapo Adesanya

Three bellwether stocks lifted the NASD Over-the-Counter (OTC) Securities Exchange by 0.62 per cent on Friday, December 12 with the NASD Unlisted Security Index (NSI) jumping by 22.20 points to 3,600.43 points from 3,578.23 points.

In the same vein, the market capitalisation of the trading platform increased by N13.28 billion to close at N2.154 trillion from the previous day’s N2.140 trillion.

During the session, Central Securities Clearing System (CSCS) Plc went up by N2.53 to close at N39.71 per share compared with the previous day’s N37.18 per share, Geo-Fluids Plc added 35 Kobo to its price to finish at N5.00 per unit versus Thursday’s closing price of N4.65 per unit, and FrieslandCampina Wamco Nigeria Plc appreciated by 23 Kobo appreciation to sell at N60.23 per share versus N60.00 per share.

It was observed that yesterday, the price of Golden Capital Plc went down by N1.05 to N9.45 per unit from N10.50 per unit, and UBN Propertiy Plc declined by 21 Kobo to N2.01 per share from the N2.22 per share it was traded a day earlier.

There was a significant improvement in the level of activity for the day, as the volume of transactions increased by 6.2 per cent to 37.4 million units from the previous day’s 35.2 million units, the value of trades went up by 265.1 per cent to N4.9 billion from N1.4 billion, and the number of deals soared by 13.80 per cent to 33 deals from 29 deals.

Infrastructure Credit Guarantee Company (InfraCredit) Plc ended the last trading day of this week as the most active stock by value on a year-to-date basis with 5.8 billion units valued at N16.4 billion, the second spot was taken by Okitipupa Plc with 178.9 million units traded for N9.5 billion, and third space was occupied by a new comer in MRS Oil Plc with 36.1 million units worth N4.9 billion.

InfraCredit Plc also finished the session as the most active 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 valued at N420.3 million, and Impresit Bakolori Plc with 537.0 million units sold for N524.9 million.

Economy

Guinness Nigeria, Others Buoy NGX Index 1.00% Growth

Published

1 day ago

13/12/2025

Dipo Olowookere

By Dipo Olowookere

The bullish run on the Nigerian Exchange (NGX) Limited continued on Friday with a further 1.00 per cent growth buoyed by gains recorded by Guinness Nigeria, Champion Breweries, and others.

Data showed that the consumer goods space expanded by 1.53 per cent during the last trading session of the week, as the insurance counter grew by 0.51 per cent, and the industrial goods sector marginally gained 0.01 per cent.

However, the banking index depreciated by 0.54 per cent due to a pocket of profit-taking, and the energy industry shrank by 0.09 per cent, while the commodity sector closed flat.

Guinness Nigeria gained 10.00 per cent to trade at N217.80, Morison Industries rose by 9.84 per cent to N4.69, Champion Breweries jumped by 9.69 per cent to N14.15, Austin Laz grew by 9.66 per cent to N2.27, and C&I Leasing appreciated by 9.62 per cent to N5.70.

Conversely, eTranzact lost 10.00 per cent to finish at N12.60, Chellarams slumped by 9.00 per cent to N13.20, Eunisell depleted by 9.89 per cent to N75.15, Africa Prudential moderated by 9.77 per cent to N12.00, and DAAR Communications decreased by 9.18 per cent to 89 Kobo.

The busiest stock on Friday was Access Holdings with 107.6 million units sold for N2.2 billion, Consolidated Hallmark traded 59.9 million units worth N245.8 million, Zenith Bank transacted 48.2 million units valued at N3.1 billion, Transcorp Power transacted 42.8 million units for N13.1 billion, and Champion Breweries exchanged 36.4 million units valued at N510.2 million.

At the close of business, a total of 602.8 million units worth N30.7 billion exchanged hands in 20,550 deals yesterday, in contrast to the 529.7 million units valued at N12.3 billion traded in 18,159 deals on Thursday, representing a surge in the trading volume, value, and number of deals by 13.80 per cent, 149.59 per cent, and 13.17 per cent apiece.

Business Post reports that the All-Share Index (ASI) soared during the session by 1,485.89 points to 149,436.48 points from 147,950.59 points and the market capitalisation moved up by N945 billion to N95.264 trillion from N94.319 trillion.

Economy

Naira Chalks up 0.11% on USD at NAFEM as CBN Defends Market

Published

1 day ago

13/12/2025

Adedapo Adesanya

By Adedapo Adesanya

An intervention of the Central Bank of Nigeria (CBN) in the foreign exchange (FX) market eased the pressure on the Naira on Friday.

The apex bank sold forex to banks and other authorised dealers in the official window to defend the domestic currency, helping to calm the FX demand pressure, with the Nigerian currency appreciating against the US Dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEM) by 0.11 per cent or N1.57 to sell at N1,454.50/$1 compared with Thursday’s closing price of N1,456.07/$1.

Also, the domestic currency improved its value against the Pound Sterling in the official market yesterday by N3.95 to close at N1,946.15/£1 versus the previous day’s N1,950.11/£1 but lost 10 Kobo on the Euro to quote at N1,706.46/€1 compared with the N1,706.36/€1 it was exchanged a day earlier.

At the black market segment, the Nigerian Naira maintained stability against the Dollar during the session at N1,470/$1 and also traded flat at N1,463/$1 at the GTBank forex counter.

Despite the sigh of relief, demand pressures outweighed the robust supply from the CBN and inflow from offshore players looking to participate at the OMO bills auction.

Gross FX reserves increased for the twenty fifth consecutive week, growing by a strong $396.84 million week-on-week to $45.44 billion.

As for the cryptocurrency market, it was down on Friday as pressure remained after Federal Reserve chair Jerome Powell’s speech on Wednesday, which hinted at a possible rate cut pause in January. As a result, markets now expect only two rate cuts in 2026 instead of three.

However, Chicago Federal Reserve President Austan Goolsbee, who was against a December rate cut, said he expects more in 2026 than the current median projection.

Ethereum (ETH) slumped by 5.1 per cent to $3,090.61, Solana (SOL) declined by 4.5 per cent to $132.79, Cardano (ADA) depreciated by 3.8 per cent to $0.4103, and Dogecoin (DOGE) dropped 2.5 per cent to trade at $0.1373.

In addition, Bitcoin (BTC) lost 2.4 per cent to sell at $90,342.74, Litecoin (LTC) tumbled by 1.9 per cent to $81.86, Binance Coin (BNB) fell by 0.6 per cent to $886.93, and Ripple (XRP) slipped by 0.5 per cent to $2.02, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) traded flat at $1.00 each.