Economy

ANALYSIS: The Problem With International Breweries N165bn Rights Issue

Published

5 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

NGX Delists Med-View Airline, Capital Oil, Goldlink Insurance

Published

1 hour ago

07/04/2025

Dipo Olowookere

By Dipo Olowookere

The shares of Med-View Airline Plc, Capital Oil Plc, and Goldlink Insurance Plc have been delisted from the trading platform of the Nigerian Exchange (NGX) Limited.

This action followed the inability of the companies to meet the standards of the NGX for trading its securities.

In a notice, Customs Street delisted the equities of the publicly-quoted firms from Thursday, April 3, 2025, “on the grounds that they are operating below the listing standards of NGX, and their securities are no longer considered suitable for continued listing and trading in the market.”

It was stated that the removal of the three organisations was in compliance with the provisions of Clause 14 of the Amended Form of General Undertaking, for listing on Nigerian Exchange Limited General Undertaking.

This clause states that, “The exchange reserves the right to, at its sole and absolute discretion, suspend trading in any listed securities of the issuer, delist such securities, or remove the name of the issuer from the daily official list of the exchange with or without prior notice to the issuer, upon failure of the issuer to comply with any one or more of the provisions of this General Undertaking, or when in its sole discretion, The exchange determines that such suspension of trading or delisting is in the public interest, or otherwise warranted.”

Business Post reports that the last share price of Capital Oil on the Nigerian Exchange before its exit was 20 Kobo, Goldlink Insurance was also 20 Kobo, while Med-View Airline was N1.62.

Economy

Nigerian Stocks Attract N28.868bn Transactions in Three Days

Published

2 hours ago

07/04/2025

Dipo Olowookere

By Dipo Olowookere

Investors bought and sold 1.183 billion stocks worth N28.868 billion in 42,397 deals on the floor of the Nigerian Exchange (NGX) Limited last week compared with the 7.521 billion stocks valued at N398.949 billion transacted a week earlier in 61,312 deals.

The bourse only opened for three trading days in the due to the public holiday declared by the Nigerian government on Monday, March 31, and Tuesday, April 1, 2025, to commemorate Eid el Fitr celebration after the one-month long Ramadan.

The market participants were mainly interested in financial stocks, especially as some of them churned out impressive financial performance in 2024, proposing dividends to shareholders.

Business Post reports that the sector led the activity chart in the three-day trading week with 906.590 million units sold for N18.926 billion in 22,876 deals, contributing 76.60 per cent and 65.56 per cent to the total trading volume and value, respectively.

The consumer goods shares recorded a turnover of 71.059 million units worth N 2.224 billion in 3,394 deals, and the services stocks traded 47.305 million units valued at N396.897 million in 2,132 deals.

The trio of Fidelity Bank, Zenith Bank, and Universal Insurance dominated the log with a turnover of 264.627 million shares worth N5.932 billion in 5,714 deals, contributing 22.36 per cent and 20.55 per cent to the total trading volume and value, respectively.

The biggest price gainer for the week was VFD Group with an appreciation of 20.76 per cent to N57.00, Union Dicon gained 19.59 per cent to finish at N5.80, Africa Prudential soared by 15.71 per cent to N15.10, NGX Group leapt by 11.90 per cent to N32.45, and UPDC REIT grew by 10.91 per cent to N6.10.

Conversely, UAC Nigeria lost 18.31 per cent to sell for N29.00, Sunu Assurances tripped by 13.38 per cent to N5.76, Universal Insurance depreciated by 13.33 per cent to 52 Kobo, Oando fell by 13.13 per cent to N42.00, and Consolidated Hallmark slipped by 12.85 per cent to N3.12.

At the close of trading in the week, 23 equities appreciated versus 43 equities in the previous week, 51 shares declined versus 36 shares a week earlier, and 73 stocks remained unchanged versus 71 stocks in the preceding week.

The All-Share Index (ASI) and the market capitalisation depreciated by 0.14 per cent and 0.17 per cent each to close the week at 105,511.89 points and N66.147 trillion, respectively.

In the same vein, all other indices closed lower except the corporate governance, banking, pension, AseM, AFR bank value, MERI value, sovereign bond and pension broad indices, which gained 0.13 per cent, 0.22 per cent, 0.22 per cent, 0.06 per cent, 1.02 per cent, 0.32 per cent, 0.12 per cent and 0.02 per cent, respectively while the commodity index closed flat.

Economy

Trump’s Tariffs: Nigeria to Prioritise Economic Resilience, Diversification

Published

3 hours ago

07/04/2025

Adedapo Adesanya

By Adedapo Adesanya

Nigeria will focus on economic resilience and accelerating export diversification, the Minister of Industry, Trade and Investment, Mrs Jumoke Oduwole, said in response to the United States’ new 14 per cent reciprocal tariff on the country’s exports.

In a statement on Sunday, the Trade Minister said the nation would tackle this challenge with pragmatism, aiming to boost non-oil exports and strengthen economic resilience under President Bola Tinubu’s Renewed Hope Agenda.

Recall that last week, President Donald Trump slammed a 10 per cent baseline tariff on countries trading with the US. Nigeria received a 14 per cent levy and experts say this could affect its foreign exchange earnings as well as importation of wheat and cars.

Addressing the matter, Mrs Oduwole said the US remains a key partner, with bilateral trade reaching N31.1 trillion from 2015 to 2024.

“The Federal Government of Nigeria acknowledges the recent tariff measures announced by the Government of the United States of America, including imposing a 14% tariff on Nigerian exports,” she said.

“While these developments potentially impact global trade negatively, Nigeria remains firmly committed to building economic resilience and accelerating export diversification,” the Minister stated.

She highlighted the hurdles for non-oil exports.

“A new 10 per cent tariff on key categories may impact the competitiveness of Nigerian goods in the US.

“For businesses in the non-oil sector, these measures present destabilising challenges to price competitiveness and market access, especially in emerging and value-added sectors vital to our diversification agenda,” the minister explained.

“Government is implementing a range of interventions in policy, financing, infrastructure, and diplomacy to help Nigerian businesses remain competitive amidst regional and global tariff hikes,” Mrs Oduwole said as she outlined Nigeria’s response.

This includes seeking alternative markets and diversifying off-take to cut trade risks.

She detailed export trends, noting that, “Nigeria’s exports to the United States over the last 2 years has consistently ranged between $5–$6 billion annually.

“A significant portion—over 90 per cent—comprises crude petroleum, mineral fuels, oils, and gas products,” she said.

Non-oil items like fertilisers (2–3 per cent), lead (1 per cent, valued at $82 million), and agricultural goods (<2 per cent) face new pressures, especially those once exempt under the African Growth and Opportunity Act (AGOA), which was signed into law in 2000.

The Minister said Nigeria is also exploring ongoing diplomacy including consulting with US counterparts and the World Trade Organisation (WTO) to find mutually beneficial solutions.

“The US Ambassador’s visit to the Minister of Industry, Trade and Investment on March 26, 2025, reaffirmed our joint commitment to strengthening economic ties that benefit both economies,” she said.