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Companies

Mixed fortunes for Nigerian Breweries Plc as the Brewery sector moribunds

Half-year results from different brewing companies have revealed that the entire sector in Nigeria may be moribund.

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Heineken scoops more Nigerian Breweries shares in insider disclosure

Nigerian Breweries Plc is the pioneer brewing company in Nigeria. They are in the business of beer brewing, marketing and selling of alcoholic beverages and are responsible for a host of drinks that have flooded the Nigerian market, for example, the Star Lager, Guilder, Stout, Goldberg, 33, Ace-root, Radler and many others

Analysis of Half-year results from different brewing companies have revealed that the entire sector in Nigeria may be moribund. Many companies posted a loss with few others grateful to breakeven.

However, the brewery company giants seem to have witnessed better realities when analysed side by side with any of its competitors. In H1 2020, Nigerian Breweries Plc experienced an 11% reduction in revenue. Dropping from N170B in 2019 to N151B in 2020 but were still able to close their book with a profit.

READ: Nigerian Breweries’ Q1 earnings report shows profit decreased by 31.4% to N5.5 billion

Q1 and Q2 presented mixed fortunes, with Q2 particularly unpalatable. The net profit margin in Q2 stands at 0.1% as against Q1 at 6.6%. Whilst other expenditures accounted for immaterial differences, there was a notable spike in finance cost in Q2. It increased by N1.5B from Q1. The implication is that more debts had been incurred as shown is the jump in loans and borrowing under the Current and Non-Current Liabilities, from N20B in Q1 to N26B in Q2 and N78B in Q1 to N112B as at the end of Q2 respectively. This takes its toll on the Q2 PAT figure generating just N83.9million compared to Q1 PAT of N5.5billion representing a colossal 98% decline. Rising finance cost is not solely responsible for this; a decreased gross profit margin from 41.9% in Q1 to 35.2% in Q2 also reflects a worsened ‘revenue to cost of sales’ relationship in Q2.

The COVID-19 pandemic has hugely been responsible for the poor turnover recorded by brewery companies around the country. The lockdown initiated to manage and contain the virus spread in a bid to preserve lives, unfortunately, have had severe repercussions for these businesses, it has all but signed their death sentence, sales have plummeted and will make little improvements in subsequent quarters if a strategy isn’t devised to market the products and improve sales whether or not the lockdown is relaxed fully.

Nigerian Breweries Plc recorded a negative of N1.1B in cash generated from operations in Q1. Despite the H1 result showing improvements to the tune of N9.4B, the Brewery Company must strive to always maintain a positive net cash flow from operations in the ensuing quarters. Businesses can generate cash from multifarious avenues, whether through returns on investments (ROI), financing activities, etc., it almost always signifies doomsday if a company consistently fails to generate actual cash from its primary operations and always have to be cushioned by its ROI. Many investors frown at this.

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Overall, Nigerian Breweries has a strong balance sheet of about N430 billion. It is not highly geared and increasingly makes investments in CAPEX. During the six-month period ended 30th June 2020, the Company acquired plant and equipment with a cost of N14.6 billion (six-month period ended 30th June 2019: N11.7 billion).

Effects of the pandemic are still evident, but it seems very likely that Nigerian Breweries survives this severely trying time for the industry even if others may not.

Ekene Onyeama is a Chartered Accountant currently plying one of the Tier one Banks in Nigeria. He started out his career at Ideascorp Limited, a private company in the hospitality industry where he served as the accountant before switching to banking. Ekene enjoys analyzing companies. He likes to write and is very excited by company valuations. He can be reached on Twitter @Ekenergy_

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Companies

First Bank’s board replacement won’t affect profitability – Fitch

CBN’s remedial actions will not have a material effect on the group’s asset quality, profitability and capitalisation.

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Fitch Ratings has affirmed that the recent First Bank board replacement will not affect the bank’s profitability and asset quality, as it rates the bank at B- with a negative outlook.

This was disclosed by the rating firm via a statement seen by Nairametrics.

According to the rating firm, the development reflects its view that the impact of the Central Bank of Nigeria’s replacement of FBNH and FBN Ltd boards, the identification of corporate governance failings and the imposition of corrective measures are tolerable at the rating level.

What Fitch is saying

It stated, “We have assessed the near-term financial impact of these actions on FBNH and FBN and believe this is tolerable at the rating level, even though the final outcome is uncertain. In our view, any remedial actions imposed by the CBN, including a potential reclassification of related-party exposures as impaired, will not have a material effect on the group’s asset quality, profitability and capitalisation.

However, this does not consider any possible additional actions by the CBN, especially if FBN fails to implement the regulator’s corrective measures or if there were any further uncovering of corporate governance irregularities.

The Outlook remains Negative, reflecting FBNH’s pre-existing asset quality and capitalisation weaknesses as well as the group’s corporate governance weaknesses highlighted by the CBN. These could put pressure on the ratings.”

What drives First Bank’s rating

FBNH is the non-operating holding company that owns FBN. FBNH’s ratings are aligned with those of FBN (which represents around 90% of consolidated group assets) due to high capital and liquidity fungibility within the group, and low double leverage (at 95% at end-1H20) at the holding company level.

It added that FBNH’s IDR is driven by its intrinsic creditworthiness, as defined by its ‘b-‘ Viability Rating (VR). The rating, according to Fitch, considers the group’s exposure to Nigeria’s volatile operating environment and also factors in vulnerability in its capital position in the context of moderate earnings generation and asset-quality pressures, where headroom above the minimum regulatory capital requirements is also moderate. Capitalisation is a factor of high importance to VR.

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“The new boards appointed to FBNH and FBN comprise individuals with sufficient experience and expertise. However, we view such major change as hugely disruptive. There are no changes in FBNH and FBN’s executive management team.

“We believe the governance shortcomings cited by the CBN reflect poorly on FBNH’s reputation and on the group’s governance and control practices. As a result, we have revised down our assessment of FBNH’s Management and Strategy score to ‘b-‘ from ‘b’.

“We also assigned a negative outlook to this factor, which reflects the uncertainty surrounding additional remedial actions that the CBN may impose due to these related party exposures as well as the potential for further uncovering of governance irregularities. It also captures the lack of track record of the new board and its ability to restore confidence in FBNH and FBN,” it added.

Asset quality remains a rating weakness. FBNH reported an improved impaired loan ratio of 7.9% at end-1Q21 (end-2020: 7.7%). However, FBNH’s reported reserve coverage of 54.5% at end-1Q21 (end-2020: 48%) remains significantly weaker than domestic peers’.

“Our assessment indicates that if the related-party loan highlighted by the CBN were classified as impaired, the ratio would be unlikely to be above 10% (excluding any new impaired loan generation from ordinary business),” Fitch added.

What you should know

On 29 April 2021, the CBN removed the non-executive directors on the boards of FBNH and FBN and replaced them with new individuals appointed by the apex bank, according to Nairametrics.

The CBN gave a series of reasons for its action including the unjustified and unapproved change of the bank’s MD/CEO by the former board, corporate governance failings pertaining to long-standing insider loans that were affecting the bank’s capitalisation and failure to comply with regulatory directives.

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Appointments

Airtel Nigeria announces appointment of Surendran as new Chief Executive Officer

Airtel Nigeria, has announced the appointment of Mr C. Surendran as the new MD/CEO with effect from August 1, 2021.

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Like MTN, is Airtel Nigeria considering listing?

Telecommunications giant, Airtel Nigeria, has announced the appointment of Mr C. Surendran as the new Managing Director and Chief Executive Officer with effect from August 1, 2021.

Surendran would be replacing the outgoing Managing Director and Chief Executive of Airtel Nigeria, Olusegun Ogunsanya, who has been elevated to the position of Chief Executive Officer of Airtel Africa Plc with effect from October 1, 2021.

According to a report from the News Agency of Nigeria, this disclosure is contained in a statement issued by Airtel on Wednesday, May 5, 2021, in Lagos.

READ: Airtel Africa signs new $500 million loan with Bank of America, HSBC, others

The statement says that Surendran would also be appointed to the Executive Committee (ExCo) as Regional Operating Director, reporting to the CEO of Airtel Africa plc, and onto the Board of Airtel Networks (Nigeria) Limited.

Airtel in its statement said, “Surendran has been with Bharti Airtel since 2003 and has contributed immensely in various roles across customer experience, sales and business operations.

He was the Chief Executive Officer of Karnataka, which is the largest circle in Airtel India, with over one billion dollars in revenue.

Surendran delivered an exceptional performance with significant movement in Revenue Market Share (RMS) over the last few years, currently at 54 percent. He has over 30 years of business experience, including 15 years at Xerox.’’

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Airtel said that Surendran would transition into his new role from June 1, 2021, and spend the time onboarding into the business until July 31, 2021.

READ: Meet the latest billionaires on the Nigerian Stock Exchange

In case you missed it

It can be recalled that a few days ago, Airtel Africa Plc, a leading provider of telecommunications and mobile money services in Nigeria and 13 other countries, announced the appointment of Mr Olusegun Ogunsanya as the new Chief Executive Officer, following the notice of retirement given by the current Managing Director/Chief Executive Officer, Raghunath Mandava, to the Board.

In the notification sent by Airtel Africa to the Nigerian Exchange, Ogunsanya is expected to join the board of Airtel Africa with effect from October 1, 2021.

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