After about 77 years of operations in Nigeria, leading brewer, Nigerian Breweries Plc, is battling to continue its operations in Africa’s most populous nation.
Pressured by a huge loss of N106 billion in its 2023 financial year, arising from a combination of factors ranging from heightened operational costs, continued pressure on consumer disposable income, escalating inflation rates, FX volatility, and high cost of debts, amongst others, the leadership of the company has embarked on a critical restructuring to come back to profitability.
It’s currently raising about N600 billion from its shareholders to boost its operations.
Background
Nigerian Breweries Plc has been in Nigeria since 78 years ago after a memorandum of understanding was signed by UAC and Heineken in 1946 to float the brand in Lagos.
Since the introduction of its flagship brand Star Lager Beer in 1949, it has expanded its Lager portfolio and introduced an unmatched range of over 21 brands enjoyed locally and globally.
Leadership
On the board of NB Plc are 11 outstanding persons who take decisions on how the company is run. The 11 persons are six Nigerians and five foreigners. Five of the boardroom members are female.
Hans Essaadi runs the daily activities of the company as Managing Director/CEO. He leads the management team.
Essaadi was appointed the Managing Director/CEO and a member of the Board on July 31, 2021. He joined the Heineken N.V Group in 1991 as a Sales Representative and subsequently took up increasingly senior roles within the Group in Sales, Export and Marketing. His international career commenced with Heineken Puerto Rico as the Country Manager, and thereafter became the General Manager, Brau Union International (Austria).
Essaadi also held the position of General Manager, Siroco (the Heineken Joint Venture with the Emirates in Dubai) and Managing Director, Heineken Malaysia Berhad, a listed Company in Malaysia.
Until his appointment to his current position in Nigerian Breweries Plc, Essaadi was the Managing Director of Al Haram Beverages, the Heineken Operating Company in Egypt.
Fresh capital
Nigerian Breweries Plc is raising about N600 billion fresh capital to boost its business. The capital raise will be achieved through a rights issue and 22,607,491,232 Ordinary Shares of N0.50 each at N26.50 per share will be sold to shareholders of the company.
“To restore sustainable growth and profitability, and enhance operational and financial stability, the Company is in the process of raising to N600 billion in additional capital through a rights issue. The funds raised will be used to eliminate its foreign exchange-denominated debts and reduce its local debts thereby mitigating the Company’s exposure to the continuing economic challenges”
Essaadi said the company obtained the approval of the Securities and Exchange Commission before commencing the Rights Issue of 22,607,491,232 Ordinary Shares of N0.50 each at N26.50 per share.
“This is being offered to existing shareholders based on 11 new Ordinary Shares for every 5 Ordinary Shares held as of 12th July 2024, being the qualifying date,” a statement issued by NB Plc disclosed.
It further noted that the Rights Circular will be sent to all shareholders recorded in the register of members as of that date.
The Offer opened on Monday, 2nd September 2024, and closes on Friday, 11th October 2024.
The move to raise the fresh capital came after the company recorded a net loss of approximately N106 billion in its 2023 full-year results. The loss follows a combination of challenging economic factors ranging from heightened operational costs, continued pressure on consumer disposable income, escalating inflation rates, FX volatility, and high cost of debts, amongst others.
The Rights Issue is a measure to restore the company’s balance sheet to a healthy position following the net finance expenses of N189 billion recorded in 2023 driven mainly by a foreign exchange loss of N153 billion resulting from the devaluation of the naira.
The proceeds from the Rights Issue would help to reduce the debt burden, paving the way for a more robust financial position.
Coupled with ongoing efforts in cost-saving initiatives and operational efficiencies, the Board is optimistic about steering the company back towards sustainable profitability shortly.
Speaking on this development, Essaadi described the Rights Issue as the first of its actions in its strategic recovery plan for business continuity and future growth, in the face of a persistently challenging operating environment.
“Despite taking significant mitigating actions, the recent acceleration of the devaluation of the Naira, the lack of access to hard currency, and high interest rates have led to significant pressure on the net profit of Nigerian Breweries. This is not sustainable and now is the appropriate time to repair the balance sheet by using the proceeds of the rights issue to reduce the company’s debt.
“This Rights Issue will allow Nigerian Breweries to deliver on its strategic objectives in line with our recovery plan, and give all our shareholders a unique opportunity to increase the number of shares they hold.”
Essaadi also stated that this process is part of the company’s recovery plan to sustain value for its stakeholders and return the business to profitability, commenting “We have been here in Nigeria for more than 77 years and, while it has been challenging in recent times for many Nigerian businesses, we believe in the long-term growth of the Nigerian market as evidenced by our decision to offer this Rights Issue.”
Financials
The company continues to navigate the challenging operating environment characterised by soaring inflation, exchange rate volatility, security challenges, elevated input costs, and rising cost of living. Despite these headwinds, the company has demonstrated resilience and is on the path to recovery in its operations. Revenue grew by 73 percent in the half year compared to the same period in 2023.
The growth was driven by strategic pricing, innovation, volume and market recovery. Gross Profit grew by 42 percent, although lower than the rate of growth in Revenue, due to a 93 percent increase in the Cost of Goods Sold driven by currency devaluation and inflation. Through its cost-saving and other efficiency initiatives, it recorded a 34 percent increase in Operating Profit, again signaling the resilience and strength of our operations. However, largely due to Foreign Exchange (FX) losses arising from the devaluation of the naira, and high-interest expenses resulting from the increasing lending rates, the Loss for the Period went up by 79 percent.
To restore sustainable growth and profitability, and enhance operational and financial stability, the company is in the process of raising to N600 billion in additional capital through a rights issue.
The funds raised will be used to eliminate its foreign exchange-denominated debts and reduce its local debts thereby mitigating the Company’s exposure to the continuing economic challenges.
Reorganisation plan
Following the recent announcement of its Business Recovery Plan, Nigerian Breweries Plc has indicated plans for a company-wide reorganisation aimed at securing a resilient and sustainable future for its stakeholders. This move is essential to improve the company’s operational efficiency, and financial stability and enable a return of the business to profitability, in the face of the persistently challenging business environment.
In letters signed by the company’s Human Resource Director, Grace Omo-Lamai, and addressed to the leadership of the National Union of Food, Beverage & Tobacco Employees and the Food Beverage and Tobacco Senior Staff Association, the company informed both Unions that its proposed plan would include operational efficiency measures and a company-wide reorganisation that includes the temporary suspension of operations in two of its nine breweries. As a result, and following labour requirements, the Company invited the Unions to discussions on the implications of the proposed measures.
Green flags
1. Solid brand name
2. Plan to inject fresh capital
3. Aggressive expansion via acquisitions
4. Expansion of brand portfolios
Red flag
1. Huge loss due to currency devaluation
2. Stiff industry competition
3. Negative impact of high lending rates on profitability.
