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Business News

Investors in Budweiser’s International Breweries wail as N163 billion is wiped out of market value.

About 20 months ago, January to be precise, if you were to buy an International Brewery Stock, you would have to part with about N64 per share.

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poor, performance, International Breweries, Quick Take: International Breweries' poor performance extends into Q3

About 20 months agoJanuary to be precise, if you were to buy an International Brewery Stock, you would have to part with about N64 per share. It was the highest share price in about 5 years and in some ways, it signaled the dominance of the Budweiser in the value beer segment.  

After making significant inroads with the likes of Hero Beer and Trophy Lager, the introduction of Budweiser, the self-acclaimed king of beers suggested that the beer war was theirs to win. While they seem to be winning both the war and the customers, they are losing on two other fronts – bottom line and share price. Unfortunately, this is where it really hurts as it gives shareholders reasons to doubt the company’s strategy. 

International Breweries’ share price has fallen by a whopping 60.7% year to date, making it the worstperforming stock on the Consumer Goods Index. Opening the year with a share price of N31.50, the stock fell to a 5-year low of N12 per share by Friday, 9th of August 2019. In this year alone, shareholders have seen about N163 billion wiped out of its market share.  

Its counterparts Guinness and Nigeria Breweries jave also lost 42.5% and 41.5% respectively year to date.

What exactly is wrong: International Breweries business strategy to fight off competition from Guinness and market leader, Nigerian Breweries has been to start a price war and focus on cheaper beer, often termed value segment by industry analysts. Unfortunately, this strategy comes at a steep cost despite its immense benefits. 

[READ ALSO: Coca-Cola may join the Nigerian “beer war” soon]

In its half-year June 2019 interim report, International Breweries reported strong revenues of N68.6 million, 29% higher than what it reported same period in 2018.  

  • On a quarterly basis, the company’s revenue has topped N30 billion every quarter since Q2 2018. In fact, International Breweries is now on track to overtake Guinness as the second-largest beermaking company in Nigeria.  
  • Despite these giant strides, margins have continued to shrink. For example, for every N100 in sales, it spends N69 as direct cost. And out of the balance of N31, it spends another N15 on marketing and promotion, as well as N20 on operating expenses, leaving it with an operational loss.  
  • On paper, the company does not generate enough revenues to pay for its humongous N225 billion loans. 
  • Still, it managed to service interest, spending over N7 billion in the first half of this year alone. To do this, the company simply owed its suppliers, increasing liabilities to N89.3 billion from N53.9 billion. 

[READ MORE: $14 billion Dangote Refinery: uncertainty surrounds take-off]

What this means: AB InBev, the parent company of International Breweries owns about 72% of the company while the other partners own 28%. Retail investors or minority shareholders obviously have little say in the direction the company is currently going. As they continue with their two-prong strategy of price war and cheaper brands, they will continue to lose money. But there are two major options the company could undertake which will provide the same results, thus presenting an opportunity for optimists 

  • At some point, International Breweries will need to raise capital to repay its huge loans. This could trigger a share price rally if it decides to take this route. 
  • It could as well decide to go private and buy out minority shareholders. This route, though expensive, is very plausible. 
  • It is also the favoured playbook of most foreignowned companies on the Nigerian Stock Exchange.  
  • By the time it does decide to take this route, the share price could be trading below N10.  

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Business

Cement prices surge in South East as scarcity, price hike hit North East

Prices of cement have risen by 67% in many Southeastern states and by 40% as observed in northern states including Bauchi, Gombe, Borno, others.

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The prices of cement have risen by 67% in the South-East states of Abia, Anambra, Ebonyi, Enugu and Imo.

This is as some residents of the North-Eastern part of the country also complained of price hike of cement, which they attributed to the scarcity of the product and the activities of middlemen who try to capitalize on the situation.

According to a report from the News Agency of Nigeria (NAN), a market survey conducted at various wholesale and retail shops in the eastern zone shows that the price of the product has almost doubled when compared to the price in 2020.

What the cement traders in the eastern states are saying

A cement dealer at Kenyetta Market in Enugu State, Mr Ifeanyi Amadi, said the increase in the price of the product which started last year was due to the Covid-19 pandemic and increase in dollar exchange.

He pointed out that a trailer load of Dangote cement with 600 bags, which sold for N1.5 million in 2020, sold for N2.3 million in the first quarter of 2021.

Another retailer, Samuel Uwakwe, noted that a bag of Dangote Cement now goes for N3,900, Unicem for N3,700; BUA Cement for N3,700 and Kogi Super Cement for N3,600.

While begging the suppliers to reduce the price and make the product available, Uwakwe expressed his reservations at few individuals being given the opportunity to supply the product noting that the prices would likely crash during raining season.

In Abia, a cross-section of residents of Umuahia, the state capital, also decried the high price of cement, which ranges from N4,000 to N4,100 per 50kg bag.

Those who spoke to NAN said the price hike had further dashed the hope of many Nigerians, wishing to own their personal homes.

A businessman, Mr Victor Ugwu, said he had to suspend his building project because of the current development as he could not afford to continue with the current price of the commodity.

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He said,  “I think the hike can be attributed to the monopoly being enjoyed by the cement producers in the country. Unfortunately, there may not be any respite until that monopoly is broken.”

However, a cement dealer, Mr James Ogbonna, said the price increase had nothing to do with the manufacturers of the commodity but rather put the blame on the activities of shylock distributors of cement.

He said, “In the first and second week of March, we sold a bag for N3,200, but within the third week we started selling at N3,500. By the end of March, the price moved up to N4,000 and now, we sell between N4,000 and N4100, depending on the brand.”

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A cement dealer in Awka, Mr Kenechukwu Okoye, said before the #EndSARS protest in 2020, a 50kg bag of cement was sold at N2,500 bur rose to N3,000 immediately after the protest and from there to the current price of N4,000 and N4,100.

The survey also says that in Owerri, the Imo state capital, the price of cement is between N3,850 and N4300, depending on the brand.

At the building materials Market in Naze, Owerri North Local Government Area, Dangote and BUA cement are sold at N4,000 per bag while BUA and UNICEM are sold for N3,900.

Mr Okechukwu Okonya, a seller, said the cost could be attributed to the high cost of transportation as a result of fuel price increase adding that major dealers sometimes hoard the product in their warehouses to create artificial scarcity.

The survey report says that in Abakaliki, Ebonyi, prices of almost all building materials have gone up, with Dangote and Bua which sold for N2,500 earlier in November and December 2020 now selling for between N4000 and N4500.

Similarly, Unicem cement which also sold at N2,300 within the same period had also gone up to N4,000 and N4,300.

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Similar price increase in North East

The survey report in Bauchi, Gombe, Borno, Yobe, Adamawa and Jigawa, shows an average of 40% increase in price.

According to the respondents, this could be attributed to the outbreak of Covid-19 which affected production in factories, while demand kept rising.

Others, however, blamed the hike on the high cost of transportation and other sundry activities associated with the business of procurement and sales of cement in the country.

Malam Ibrahim Sanusi, a cement dealer at the Gombe main market described the hike as outrageous when compared with the price of the same commodity the previous year.

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He said that a bag of Dangote brand which he bought for N2,400 and sold for N2, 500, is bought for N4,000 from their depot in Gombe and sold for N4,200.

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Energy

Carbon Tax: A market-based alternative to carbon emissions in Nigeria

A carbon tax is a way to have users of carbon fuels pay for the climate damage caused by releasing carbon dioxide into the atmosphere.

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climate, Understanding Carbon Credits and Carbon Offset market

Fossil Fuel is hurting us. It is an undeniable truth. I have heard in many conversations more often than not a very solid support for the fossil industry. Rather simple conversations on its perils and disadvantages always end with resignation by the other party that “fossil has come to stay.”

While not doubting that premise, I rather believe a lot can be done to limit the harmful effect of what is here to stay with us. A lot can be said about how beneficial fossil fuel is to the economy and how it is initially cheaper and more available but, in truth, the harms still exists.

Sadly, these harms are more than good. The clarion call to stop these emissions has been on for a very long time, but the reality remains the attention span of the larger consumer population is very very short when it comes to that discourse.

I would say, the essence and need for us to look to further means to mitigate the harm from fossil fuel is not just for a cleaner environment but also for an environment to still exist. The constant clamour for a change in our perspective is not just for the growth of the alternative sector but also a struggle for survival, because we will all lose if we do not stop.

Now, since we have declared to ourselves that we wouldn’t stop, it only makes sense if we can effectively checkmate how we continue with fossil, adopt Carbon Capture techniques and in an attempt to make sure no one goes overboard, impose fines on the amount on those that burn beyond their limit and on fossil that enters the country. This is a concept that, rather thankfully, already exists. Carbon Tax.

A carbon tax is a fee imposed on the burning of carbon-based fuels (coal, oil, gas). A carbon tax is a way — the only way, really — to have users of carbon fuels pay for the climate damage caused by releasing carbon dioxide into the atmosphere.

It is a market-based alternative that helps the government reduce the carbon footprint and also allows them make money as a government when there is a breach of this solemn oath to stay in check. In Nigeria, The Carbon Tax Act came into force on 1 June 2019. The carbon tax was designed to apply to direct emissions in the following categories as specified in the National Greenhouse Gas Emission Reporting Regulations:

  • Fuel combustion, which relates to emissions released from fuel combustion activities;
  • Fugitive emissions from fuels, which relates to emissions mainly released from the extraction, production, processing, and distribution of fossil fuels; and
  • Industrial processes emissions, which relates to emissions released from the consumption of carbonates and the use of fuels as feedstock or as carbon reductants, and the emission of synthetic gases in particular cases.

It is trite to say that this entire scheme is altogether ineffective and barely surviving. It is sad to note because there are numerous benefits to Carbon Tax. The advantages of doing this asides still having a healthy civilization in the next 100 years are numerous. First, it would be creating a very profitable system of revenue for the government. Here, the government will not need to spend much on the initial cost of having this revenue stream in place. Aside from the need to establish an agency to enforce the limits and payment of fines and the adequate system of calculating and verifying the amount consumed, the expenses on the government is almost Zero. This agency unlike many others in this country will be more active than idle, considering the existence of various fossil burning industries in Nigeria and being largely oil-dependent.

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Secondly, this would help Nigeria join the global effort to reduce the carbon footprint and in turn put Nigeria on the good pages of the global community as a contributor to green energy. This will birth a host of benefits for the Nigerian Community and also assist the domestic green energy advocates.

Furthermore, this system will help to promote the alternative energy industry. The renewable energy industry will from this initiative be able to sufficiently measure the actual impact of their activities on the environment and the economy as well as challenge the growth of new innovations to grow it. The campaigns will no longer be dependent on cancelling out the large emissions killing the environment since more revenue now streams for the government from them, but to the actual direct benefits of renewable energy.

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This alternative will also assist the government in assessing the benefits of reducing emissions and growing the renewable energy industry. The implementation of this will serve as a step for the assessment and understanding of the dynamics, policies and funding needed for the full inevitable integration of Green Energy.

The advantages are numerous and as such need Carbon Taxing to be revived in the country. In all sincerity to the dynamics of Nigerian politics and due respect to our exalted government, it is almost too easy for these things to be put in place seeing they will also have a fresh channel to loot from while saving our dear lives and making the air cleaner. A Win-Win for all the parties involved.

 

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Written by Ude Fortune Chiziterem

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