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Analysis: Nigerian Breweries, the glory days are gone

These days, the story is somewhat underwhelming for Nigerian Breweries and every year it gets worse, as the brewery giant reported a profit after tax of N16 billion from revenue of about N323 billion only

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Nigerian Breweries, the glory days are gone

The year is 2013 and Nigerian Breweries did something quite remarkable. It just reported a profit after tax of N43 billion and a return on equity of 41.9%. That year, Nigeria Breweries also reported revenues of N268.6 billion and paid over N34 billion in dividends. Also, it had just N9 billion in external debts in 2013. Those were the good old days.

These days, however, the story is somewhat underwhelming and every year it gets worse. In 2019, the brewery giant reported a profit after tax of N16 billion from revenue of about N323 billion only. Return on equity is 11.54% while dividends are just about N18 billion. The directors of the company have recommended that they pay out the entire profits and even more as dividends. It now has about N55 billion in total external debts in 2019.

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Nigeria’s brewery sector is facing a potential implosion with intense competition, harsh economy, unfavourable government policies and changing taste of consumers haemorrhaging top and bottom line. Despite splashing the cash on brand ambassadors like Burna Boy and spending billions on events and advertisement, it is still finding it extremely difficult to get younger Nigerians to embrace its 21 flagship brands.

Revenue has grown by over N100 billion since 2013 but it has come at a significant cost to the business. Last year (2019), the company reported that it had spent about N77.6 billion on marketing and distribution expenses, a whopping 24% of revenue. It spent 19.5% of revenue on marketing and distribution expenses in 2016 and 15.9% in 2013, its year of profits. Marketing and distribution expenses have almost doubled from N42.9bilion to N77.6 billion in 6 years.

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[READ MORE: Nigerian Breweries goes to the retail lab)

But what else can the company do? It can’t just fold its arm against stiff competition and watch its market share and inventors confidence erode. Management probably once in while takes solace at the performance of Guinness, thanking their stars (no pun intended) that they are much better. It’s brutal out there and the beer makers know it’s only going to get worse. Who knows who will be left standing 10 years from now? For Heineken, its majority shareholder, it keeps investing and taking a pint of their return.

The parent company with 55.9% ownership of the company will get about N10 billion out of the dividend of N18 billion. In addition, it earns royalties and technical fees of N7.2 billion or 2.2% of revenues but 45% of profits as royalty and technical fees.

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Back to 2013, the company paid N9.36 billion (3.4% of revenues or 21.7% of profits ) as royalty and technical service fees. Shareholders will be reminded quite clearly that the parent company continues to invest heavily in its Nigerian subsidiary.

About N30.1 billion was spent in 2019 (N30.3 billion in 2018) on property plant and equipment out of which “returning packaging materials” was N10 billion. To date, the company has spent N125 billion out of its N446 billion property plant and equipment in returning packaging plant and equipment. Only Plant and Machinery at N189 billion is worth more. Suffice to add that it’s the current market valuation of N411 billion is just 1.07X total assets and 2.45X net assets.

It’s thus petrifying to be reminded that at N55 per share and 25x price to earnings ratio, Nigeria Breweries stock may well be overvalued. It’s is highly unlikely that it will grow its earnings per share that aggressively. Despite paying its entire profits as dividends and more, its dividend yield will be 5% at the current share price of N55.

Year to date, the stock is down 12.7% and could likely remain depressed amidst a rather gloomy economic outlook. With inflation skyrocketing and disposable income of consumers taking a hit, the horizon for Nigeria Breweries is nowhere near its glory days.

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Nairametrics is Nigeria's top business news and financial analysis website. We focus on providing resources that help small businesses and retail investors make better investing decisions. Nairametrics is updated daily by a team of professionals. Post updated as "Nairametrics" are published by our Editorial Board.

2 Comments

2 Comments

  1. Ola Ilesanmi

    February 20, 2020 at 11:44 am

    Well talking seriously about Nigerian breweries, I think the future can still be bright .
    Judging from the present escalations of insecurity , broader closure , hash tax indices coupled with foreign exchange models , it only requires magical wands to
    jump over primordially commensurate index values .
    God bless Nigeria . As a share holder even before 2013 , the company impacted on the share holders quite tremendously

    • Zinga

      February 22, 2020 at 7:41 am

      Yea,u’r right. The company will still get better. All this depends on the the future economic growth of Nigeria.

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Fidelity Bank Plc must cover the chink in its curtains to keep rising 

Fidelity Bank Plc follows the narrative of top tier-2 banks, which have had better or easier years.

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Fidelity Bank Plc

The Nigerian banking sector has consistently been one of the most profitable sectors in the Nigeria Stock Exchange market. However, in 2020, Deposit Money Banks (DMBs) have faced a flurry of impediments, which may have affected their solidity.

With reduced income from fee and commission implemented at the start of the year by the Central Bank of Nigeria, the paucity of foreign currency for international transactions, the resulting economic contraction from dire effects of the coronavirus pandemic, and the consequent operational constraints of keeping employees safe, 2020 is obviously fraught with numerous disorders for banking institutions.

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For most, it hasn’t exactly been a year for growth at all, more like a walk in the woods, where improvements to bottom-line is almost unexpected. This period, many banks seem content with simply surviving and fundamentally matching their previous feats.

Fidelity Bank Plc follows the narrative of top tier-2 banks, which have had better or easier years. The bank generated a 2020 9M PAT of N20.4billion, rising 7.08% from the corresponding figures last year, but drilling solely into its results in Q3’2020 and its exact comparative period in 2019, the bank suffered reduced interest revenue, reduced fees and commission, reduced profit before tax, and reduced after-tax profit.

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Fidelity Bank Plc concluded Q3 with a profit position of N9.1billion, 13.7% decline compared to its position in 2019 y/y. PBT reduced by 12.9% from N10.8billion in 2019 to N9.4billion this year. Gross earning in Q3 was only N49billion as against N57billion in 2019 – plummeting 14%.

The Group Chief Executive Officer of the bank, Mr. Nnamdi Okonkwo, commenting on the result said: “Our 9 months results reflect our resilient business model, particularly in a very challenging operating environment. We worked closely with our customers to gradually recover from the economic impact of the pandemic and the attendant effect of the lockdown. The drop in gross earnings was due to the decline in interest and similar income, caused by lower yields and drop in fee income.”

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True cause of the reduction in earnings

DMBs generate gross earnings under three primary subheads: Interests earned, Fees and commission, and Other operating income. Fidelity Bank Plc generated a combined total of N150.8billion for the period ended September 2020 from these three categories, compared to the N158.5billion in the corresponding period last year.

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Deeper analysis reveals that this rising tier-2 bank has seen more deficit in revenue from fee and commission compared to the other aforementioned gross-earnings’ generating-sources within this period. Interest earned dropped by a difference of N4.3billion, while revenue from fee and commission saw a decline of N4.8billion from N14.5billion in 2019 to N19.3billion YoY.

Fee and commission as a component of gross earnings

Card maintenance fees, account maintenance fees, commission on remittances, collect fees, telex fees, electronic transfer fees, amongst others, represent the plethora of channels that makes up income from fee and commission.

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The real insight this particular component of gross earnings provides is that a spike in revenue generated indicates increasing/increased customer account activity. The more a customer maximizes the usage of an account’s product and facilities, the more the revenue earned from this segment. Thus, earnings from fees and commissions are so overriding due to their apparent controllability.

For example, a bank could make the decision to purely pursue and aggressively drive the usage of its ATM debit card and promptly see the revenue from commission rise. Furthermore, an increased rate of card production and collection necessitates usage and consequently means more money is earned as card maintenance fees.

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The fact that gross earnings reduced mostly from fees and commissions should be a telling concern for the Management of Fidelity Bank Plc. Post covid-19 would birth the dawn of a new era for business processes. The management must guarantee the usability of its electronic banking channels, promotion of its cards, and with urgency, implement improved service delivery mechanisms to ensure that it is the first port of call to customers for general payments and remittances.

These measures are of grave significance in the bid to bridge its widened fee and commission income gap.

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Unilever Nigeria Plc: Change in management has had mixed impact

9 months into the change of management, Unilever Nigeria Plc’s performance in Nigeria has been largely underwhelming.

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Change in the management of a company is never a walk in the park. Transitions usually take time to yield the desired results. Organizations can look to past successful managerial transitions for inspiration, but not for instruction because there is no defined playbook. The decision to replace Mr Yaw Nsarkoh, who served as the Managing Director of Unilever Nigeria Plc until the end of 2019 was plausible, but adjustments were never going to be an easy task.

Mr Nsarkoh had served as Managing Director of the company for 5 years and steered the course of its proceedings with remarkable skill up until the financial performance disaster which culminated in his resignation on November 28th, 2019.


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