Nigerian Breweries: Raising the Stake in Brand Visibility through Merger
Festus Akanbi revisits the recent business combination of Nigerian Breweries Plc and Consolidated Breweries, saying the merger creates a win-win scenario for the expanded shareholders
When the newly expanded management of the Nigerian Breweries Plc, led by the company’s chairman, Chief Kola Jamodu, paid a courtesy visit to the Nigerian Stock Exchange (NSE) on Monday February 9, stockbrokers and other members of the investment community in attendance realised the visit was not for fanfare.
For Jamodu, the story of the recent business combination of the Nigerian Breweries and Consolidated Breweries, is such that should be taken to the door step of shareholders and other stakeholders in the Nigerian capital market given the potential of the emerging company to deliver value to investors and dish out quality products to its teeming consumers. The visit was also considered as a period for the company to reassure investors and other stakeholders of its commitment to enhance operational efficiencies and maximise value for all investors of the enlarged company. The enlargement of the board and management of the new company came with the enlargement of the product scope, market reach and increased projections, hence the need to showcase the latest potentials of the brewery giant to the investment community. Improved Capacity
With the conclusion of the merger, the market share of Nigerian Breweries is expected to jump to over 70 per cent. This is because the merger will now enable the surviving entity, Nigerian Breweries; efficiently manufacture products of both entities through the combined operational capacity of both companies. Products will also be sold and distributed across the combined sales and distribution network of the two companies. These synergies are expected to result in increased returns to shareholders.
Today, the new Nigerian Breweries Plc has 11 breweries strategically spread across the nation, two malting plants and 19 brands including the lagers - Heineken, Star, Gulder, ‘33’ Export, Goldberg, More and Life. The Stouts - Legend Extra stout, Turbo King and Williams Dark Ale. The non-alcoholic malt drinks - Maltina, Amstel Malta, Malta Gold, Hi Malt, and Maltex. Other brands in the company’s portfolio are - Fayrouz, Breezers, Ace Passion and Climax Energy drink. In a special report made available to THISDAY last week, the international investment and financial advisory firm, Renaissance Capital expressed the confidence that the company’s portfolio diversification will be a great advantage to the enlarged company.
The report titled, ‘Nigerian Breweries Plc: Still Our Preferred Brewer,’ said “With the merger of CB now complete, we think NB remains the only brewer in Nigeria that will be able to capture growth in the industry, given its diversified product portfolio and distribution strength. Furthermore, NB is growing its RTD portfolio, with the launch of Ace across Nigeria in 1Q. The RTD segment has grown by over 50 per cent pa for the past two years, according to Euromonitor.”
Industry analysts believe the business combination will reinforce the low cost drive of Nigerian Breweries, which has enabled it to improve profit margin. It raised net profit margin from 15.1 per cent in 2012 to 16 per cent in 2013. Significant cost moderation has been achieved in the areas of finance cost and distribution/administrative. Economy of Scale
They pointed out that the economy of scale advantage to be gained from the combination of the operations of the two companies as well as important synergies arising there from are expected to lead to further significant cost savings and stretching out of profit margin. It is believed that a more focused and centric management of resources is a major benefit of a merger and it is expected to yield improved organisational efficiency in a number of areas. For instance, the post-merger entity will incur only a single set of head office expenses such as annual general meetings, board of directors’ fees and communication expenses to shareholders. Fast Selling Products, Market Leadership
According to a report, further cost saving can be expected from the consolidation of supply and distribution networks of both companies as a result of improved operational efficiencies arising from integrated operations. Both companies have fast selling products in the market, which the enlarged company will now manufacture more efficiently through the combined operational capacity of both companies.
Another advantage is the fact that the products will also be sold and distributed across the entire combined sales and distribution network of the two companies. By running an expanded operating capacity more efficiently, the new Nigerian Breweries promises to be in a position to extend market leadership, accelerate revenue growth and expand profit capacity.
Nigerian Breweries has been growing sales revenue every year over the past five years, from N164.2 billion in 2009 to N268.61 billion in 2013. The company has been recording stable sales revenue growth, which is described as a feat in a tight market. With that, Nigerian Breweries is maintaining its leading market share in the breweries sector and shows the most stable record in sales revenue growth in the industry. Before the merger, Consolidated Breweries was able to maintain a continuing growth in sales revenue and succeeded in improving turnover every year in the past five years. From about N20.21 billion in 2009, the company posted sales revenue of N27.91 billion in 2011, which grew to a peak of N33.91 billion at the end of 2013.
The improved capacity to produce and market products is expected to launch the post-merger entity into a rapid growth in sales revenue. Nigerian Breweries is engaged in the brewing, marketing and selling of both alcoholic and non-alcoholic beverage drinks in Nigeria. The company is a public limited liability company and was incorporated in 1946. Since inception, the company has achieved an enviable track record of consistent and sustainable growth. Today, Nigerian Breweries is one of the largest companies listed on The Nigerian Stock Exchange (NSE). The major brands produced by Nigerian Breweries are Heineken lager, Gulder lager, Star lager, Maltina malt drink, Amstel Malta malt drink, Fayrouz soft drink, and Climax herbal energy drink. Nigerian Breweries is a subsidiary of Heineken and has benefited from Heineken’s technological, logistics, marketing and managerial expertise. Nigerian Breweries financial accounts for the year ended December 31, 2013 puts its authorised and paid up share capital at N4.00 billion and N3.78 billion respectively, while the Shareholders funds stood at N112.36 billion. Total Assets as at 31 December 2013 were in excess of N252billion. Nigerian Breweries is the second largest listed company on The NSE, with a market capitalization of about N1.13 trillion as at May 8, 2014 and over 115,000 shareholders. Consolidated Breweries Plc emerged from the merger of Continental Breweries Limited and Eastern Breweries Limited in 1982. It is involved in the production, marketing and
Further cost saving can be expected from the consolidation of supply and distribution networks of both companies as a result of improved operational efficiencies arising from integrated operations. Both companies have fast selling products in the market, which the enlarged company will now manufacture more efficiently through the combined operational capacity of both companies
distribution of alcoholic and non-alcoholic beverages. Its brands cover the Lager, Stout and Malt categories and include’33’ Export Lager Beer, Turbo King Dark Ale, Williams Dark Ale, Hi-Malt and Maltex Malt. Consolidated Breweries Plc became a subsidiary of Heineken in 2005, following Heineken’s acquisition of a majority shareholding in the company. Consolidated Breweries Plc benefits from Heineken’s world-class technological, logistics, marketing and managerial expertise.
The company currently operates through three breweries located in Ijebu Ode, AwoOmamma and Makurdi. As at 31 December 2013, Consolidated Breweries recorded revenue of N33.92 billion. Authorised share capital was N350.00 million, made up of 700 million ordinary shares of N0.50 each and an issued share capital of N248.04 million. The shareholders’ funds as at 31 December, 2013 stood at N13.94 billion. Benefits of the Merger
Analysts said the business combination will teach a good lesson on strategic approach to value creation and sustainability. This is because in recent years, the defunct CB had made a number of acquisitions including that of Maltex. Consolidated Breweries shareholders will become shareholders of a larger and highly profitable entity. Synergies created as a result of the merger has created additional value for shareholders.
Meanwhile the Scheme of Merger also provided Consolidated Breweries shareholders with a more liquid stock. Whilst Nigerian Breweries is a listed company with its shares traded on The NSE, Consolidated Breweries is not. Shareholders of Consolidated Breweries will enjoy the benefit of holding shares in a liquid company listed on The NSE.
The merger has also provided a platform where the enlarged company can benefit from economies of scales in procurement, distribution and manufacturing of all the products on offer. It is expected that the benefits accruing from these will accrue to all stakeholders. It will ensure that Consolidated Breweries quality brands are marketed and distributed nationwide, hence creating more value for all stakeholders.
Jamodu who raised the prospect of increased wealth for shareholders during the visit to the stock exchange said, “This is expected to be achieved through major cost savings in the areas of interest expenses, distribution/ administrative cost among other operating activities where duplication will be eliminated. Expenses such as annual general meetings, board of directors’ fees and communication expenses to shareholders will be reduced,” he said.
Other major benefits accruable from the merger also include cost saving from the consolidation of supply and distribution networks of both companies as a result of improved operational efficiencies arising from integrated operations. The products of both companies will be manufactured more efficiently through their combined operational capacities.
Significant cost saving is targeted by distributing products and selling the enlarged product portfolio of the new company across the entire combined sales and distribution network of the enlarged company.
The enlarged company is expected to extend market leadership, accelerate revenue growth and expand profit capacity. The legacy companies have maintained stable growth in sales revenue and profitability in the past five years. The merger of Nigerian Breweries and Consolidated Breweries is also a boost to the equities market, as former shareholders of Consolidated Breweries Plc., which was not listed in the NSE, now have the opportunity to trade their shares on the floor of the exchange. This will improve the liquidity of the stocks and increase market capitalisation of the exchange. The Nigerian beer market is highly advertising intensive, with keen competition between dominant player to expand or retain market share. A more meticulous observation suggests that NB has been more consistent with the sponsorships of Nigerian reality TV shows such as Gulder Ultimate Search, Maltina Dance All, Star Quest and the company’s consistent sponsorship of the UEFA Champions League in recent times. As a result of this, OPEX margin (sales and distribution expenses) averaged 24.51 percent in 5 years among key players in the industry.
Further analysis on operating expenses margin in the industry shows that consolidated Breweries hold pace in terms of OPEX efficiency with 18.44 per cent, followed by Nigerian Breweries with 23.54 per cent, compare to Guinness 25.47 per cent.