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Nigeria I Brewing Sector Report I July 2014

Equity Research | www.meristemng.com | July 2014

Breweries Sector Report 2014

Unearthing the compelling growth potentials

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Investment Précis

Introduction: This report reassesses the most recent developments in the Nigerian

brewing space noting the fact that developments in the global brewing market stays

consistent with trends in domestic economies.

Global beer market: Mergers and Acquisitions (M&As) appear to be the most

remarkable trend in the global beer industry. To stay dominant, profitable and more

competitive, top players are expanding into markets with the highest potential for

growth via M&As. As beer volume growth begins to slow in developed markets,

Africa and emerging market economies (EMEs) are now the major engines for

growth. Given the above, the top beer companies seem to be on a quest to identify

which of the EMEs portends the largest potential for growth thereby driving a

remarkable global expansion into these growing markets in a bid to capture more

market share.

Africa’s blooming market: With a consumer market of over one billion people,

average GDP growth of 5% up to 2020 and a beer consumption per capita of 9liters

(vs.25liter peer average), beer volume growth in Africa is without doubt compelling.

Two of the big four largest players (SABM and Heineken) have their foot prints

firmly rooted in Africa. SABM dominates the continent with 35% volume share,

Heineken and CASTEL in the second position share 23% each whereas, Diageo

controls 13%. We think markets with the strongest fundamentals for growth will

attract further investment going forward.

Eye on the Nigerian brewing Space: Nigeria is the most populous and largest

economy in Africa, with substantial potential for a double digit growth. Huge

consumer market, beer consumption deficit and demand deficit plus intense

competition are amongst the major driving factors in the Nigerian brewing space.

Drags in discretionary spending as well as security challenges remain the key

challenges to the budding prospect. Nonetheless, we project five year beer volume

growth at 24.25mhl, translating to a 5% five year average growth rate.

Dominant global players: Heineken N.V controls 70% of Nigerian beer market with

majority stake in Nigerian breweries, Consolidated and Champion breweries Plc.

Diageo is the second major player (27%) through its ownership of GUINESS Plc. New

entrant, SABMiller, is challenging the dominance of the major players via stake in

International breweries and Pabod breweries.

…Unearthing the compelling growth potentials: In this report, we uncover the eye-

catching growth potential in the Nigerian beer market as a key volume growth

driver in Africa and the rest of EMEs.

Analyst Olawale Olusi [email protected] +2348025672325

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Table of Content Executive précis 2

1. Brewing in the Global Space 5-8

Overview 5

Industry Consolidation… shaping the global market dynamics 6

Global beer market outlook 8

2. The African Brewing Market 9-12

Eye Catching Growth Story 9

Competitive Landscape in Africa 11

Prospect For Growth Remain Strong 12

3. The Nigerian Brewery Sector Overview 13-21

The Nigerian Beverage Market 13

Structure of the Nigerian Beer market 15

Market Share: A terrain of two dominant players 16

Beer consumption: Nigerians drink-less compared to peers 19

Key Growth drivers: The demographic dividend fulcrum 19

Major Challenges: Discretionary spending softens 21

4. Value Chain Analysis 22-27

Beer Making Inputs 22

Five Competitive Forces Shaping the Beer Industry In Nigeria 26

Financial Ratio analysis 27

5. Industry Prospect and Valuation 28-30

Valuation 28

Industry prospects 29

Where do we see the beer market going forward? 30

6. Company Analysis 31-53

Quoted Brewers 31

Nigerian Breweries Plc. 33-38

Company Profile 34

Route to the Market 35

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Performance + Outlook 36

Guinness Nigeria Plc. 39-42

Company Profile 40


Performance outlook 42

International Breweries Plc. 44-50

Company Profile 46


Performance and outlook 48

Other Listed Beer Makers 51-53

Champion Breweries plc. 51

Jos Int. Breweries Plc. 52

Premier Breweries Plc. 53

Golden Guinea Breweries. Plc. 53

Non-Quoted Brewer: Consolidated Breweries Plc. 53

7. Concluding Highlights 53

8. Appendices (Financials: Historical+ Forecast) 54-60

9. Analyst certification, Disclaimer and Disclosure 61-65

10. Glossary 66-67

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Asia35%

America29%

Europe28%

Africa7%

Australia1%

-

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

Asia America Europe Africa Australia

Mill

ion

s

2011 2012

1. Brewing in the Global Space

1.1 Overview

Beer is the most widely consumed alcoholic beverage in the world after water

and tea. According to Euro-monitor, Beer volume and value grew by 7% and 2%

respectively in 2013. Canadian global beer trend report estimates beer

consumption at 2bn hectoliters (hl) in 2013.

Despite the effect of global economic crunch on discretionary spending and by

implication on the beer consumption, the Canadian beer report held that

average growth of the global beer industry is expected to expand by 2.8%

between 2009 and 2015, although this is expected to vary across regions. The

Middle East market is forecast to grow by 5.5% CAGR (2009 to 2015) while Asian

and African markets are to expand at 5% CAGR and Latin American by 3%. In

contrast, consumption in European and American markets is expected to

experience marginal growth in the same period.

Though the global growth in the industry is expected to be driven by the

developing markets, European and American markets continue to account for

more than 50% of global beer production.

Exhibit1: Global Beer Production (Mhl) by Region 2013

Source: Barth Report 2013

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25.1%

11.8%

6.8%5.0% 4.8% 4.2%

42.3%

2.5%

12.5%

22.5%

32.5%

42.5%

CHINA USA BRAZIL RUSSIA GERMANY MEXICO others

Top 4 Countries

48%

Next 3534%

Others18%

According to the 2013 Barth report, Africa accounts for 7% of the total global

production making the region the least producer. Asia is the largest producer

accounting for 35% of total global production in 2012. USA is the second with

11.8%; Brazil, Russia, Germany and Mexico follow with 6.8%, 5%, 4.8% and 4.2%

accordingly.

When considered globally, an obvious feature is the dominance of global

production of beer by the four brewing giants (ABInBev, SABMiller, Heineken

and Carlsberg) accounting for 48% of total volume produced.

1.2 Industry Consolidation… shaping the global market dynamics

Industry consolidation is perhaps the most noteworthy feature in the global

brewing space as globalization and rapid consolidation continue to inform M&A

amongst the largest global industry player. Over the last ten years the top ten

industry leaders have gone through continued steady consolidation in a bid to

forge stronger, more profitable and competitive global institutions.

Exhibit3 below shows how market share among top players has been changed

between 2003 and 2013, with Anheuser-Busch topping the list in 2003 (8.5%

market share). However, in 2013, consolidation between Anheuser-Butsch,

Interbrew and Ambev has led to a more competitive, stronger and bigger

ABInBev with 21% market share.

In 2013, ABInBev completed the acquisition of Mexican brewer, Grupo Modelo.

Heineken acquired Asia Pacific Breweries and Molson Coors acquired StarBev in

Central and Eastern Europe. CR Snow (SABMiller’s joint venture with CRE)

announced the intended acquisition of Kingsway Brewery in China.

Exhibit2: Global Beer production by Brewers Global Beer Production by Country

Source: Barth Report 2013

ABInBev, SABMiller, Heineken and Carlsberg have emerged top four after series of consolidations.

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ABinBEV, 21%

SABMiller, 10%

Heineken, 9%

Carlsberg, 6%

CRB, 6%

Tsingtao, 4%

Molson coors, 3%

Beijing yanjing, 3%

kirin holdco, 3%

Asashi group, 1%

others, 35%

MARKET SHARE 352.9

190171.7

120.4

0

50

100

150

200

250

300

350

ABINBEV SABMiller Heineken Carlsberg

BIG 4 GLOBAL PRODUCER…

The biggest five global industry players produce 52% global beer volume. They

continue to drive regional expansion both organically and through acquisitions;

increasing their collective share of the market at the expense of smaller players,

while the next 6 firms produce 13%. Others account for the remaining 35%.

ABInBev, SAB-Miller (SABM), Heineken and Carlsberg are currently the top

global players by market share with 21%, 10%, 9% and 6% in that order.

Exhibit4a: Global Market Share among Top Ten Global Players

Source: Euro-monitor, Goldman Sachs Global Investment Research and Barth report

Biggest five global Firms account for 52% global volume produced

Exhibit3: Industry Consolidation in the Global Brewing Space

2003 2013

Anheuser-Busch 8.50% ABInBev 21%

SABMiller 7.60% SABMiller 10%

INTERBREW 6.00% Heineken 9%

HEINEKEN 5.70% Carlsberg 6%

Ambev 4.00% CRB 6%

Grupo Modelo 2.60% Tsingtao 4%

Adolph Coor co. 2.60% Molson Coors 3%

Tsingtao 2.20% Beijing Yanjing 3%

Carlsberg 2.00% Kirin hold co 3%

Asashi group 2.00% Asashi group 1%

Others 56.80% others 35%

Source: Euro-monitor, Goldman Sachs Global Investment Research

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1.3 Global beer market outlook: Africa and developing markets to drive growth

Overall, with slowing growth in beer volume in the developed market,

indications remain enduring that developing markets are the main engine to

drive growth in the global beer market. With improving disposable income and

consumer spending, consumers in these markets are seen trading unbranded

alcohol for more standardized beer, hence, strong volume growth in Africa, Asia

and Latin America. However, the global players continue to screen these

markets with a realization of uneven attractiveness amongst them. African and

Latin American markets emerge as spotlight for long-term global volume

growth.

African and Latin American

markets are spotlights for

long-term global volume

growth.

Exhibit4b: Around the World in Alcohol

Source: WHO

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2. The African Brewing Market

2.1 Eye Catching Growth Story

With a population size of 1.03bn people and a projected growth rate of 2%

(CAGR) up to 2020, Africa will account for 20% of the global population by 2020

according to IMF estimates. By income, the continent is projected to grow by 7%

up to 2020. Six among the top ten fastest growing economies in the world are in

Africa, with Nigeria, the most populous and largest economy growing at an

average growth rate of 6.5% for the past 5 years.

Relatively, Beer volume has shown remarkable growth in Africa in the last 10

year due to improving income level, expanding middle class and changing

demographic features compared to other region. We reviewed data on beer

volume growth globally, Exhibit 5 below indicates that, while the composition of

volume growth continues to dip in the America and Europe, (32.40% &34.90% in

2003 vs. 29.28% & 27.94% in 2012), Africa and Asia have sustained a steady

growth in the same period. (26.90% &4.40% in 2003 vs. 35% & 6.41% in 2012).

1.03Bn people

Population growth of 2% CAGR to

2020

Avrg. GDP growth of 6% to 2020

Six fastest growing economies are in

Africa

2011-2020 CAGR Beer market 4.1%

BCCP 9liters Vs.

2012 Beer production 125.06 mhl

Africa has sustained steady

growth in a decade

compared to developed

markets.

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1%

3%

5%

7%

9%

0

10

20

30

40

50

60

E/ Europe Latin America China andS/korea

S/E Asia AME India and Srilanka

BCCP Avrg BCCP CAGR

Africa4%

2003

Africa7%

2012

Despite the appealing fundamentals, Beer consumption per capita (BCCP) in

Africa is very low (9liter per head, Global insight 2012), compared to other

markets. This number implies that the potential for growth for beer

consumption is massive in the region. The sector’s 10-year average growth rate

(CAGR) of 4.1% substantiates this view.

Exhibit 6: Per Capital beer consumption (BCCP) in African vs. Peers and 2020 forecast CAGR

Source: Global Insight, Euro-monitor, Plato beer report

Exhibit 5: African Beer Volume Growth in 2003 vs. 2012

Source: Beverage Marketing corp., Barth Report.

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35%

23%

23%

13%

6%

SABM

HEINEKEN

CASTEL/BGI

DIAGEO

OTHERS

2.2 Competitive Landscape in Africa

The Africa beer market is dominated by Global brands such as SABM and

Heineken, two of the big four. They have their foot prints firmly rooted in Africa.

SABM dominates the continent with 35% market share; Heineken and CASTEL

occupy the second position with 23% each, Diageo, the parent company of

Guinness Nigeria Plc. Follows with 13% share of the market, Others makers

control the residual 6%.

Source: Global Insight

Exhibit 8: Beer volume market share in Africa

Source: Plato African beer report 2012

Exhibit7: Beer Volume Growth In Africa Vs. Global Growth

REGION 2003 2005 2007 2008 2011 2012

Asia 26.90% 28.50% 31.20% 31.70% 35.25% 35.27%

America 32.40% 31.60% 29.90% 30.00% 29.31% 29.28%

Europe 34.90% 34.10% 33.10% 32.20% 28.49% 27.94%

Africa 4.40% 4.50% 4.70% 5.00% 5.82% 6.41%

Australia 1.40% 1.30% 1.20% 1.20% 1.13% 1.11%

TOTAL 100% 100% 100% 100% 100% 100%

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2.3 Prospect For Growth Remain Strong

Going forward, the prospect for long term growth of the sector in Africa and

developing economies remain strong. This will be driven by factors such as

improving level of income, huge consumer market and attractive demographics.

Besides, in a bid to enlarge market share and stay dominant the degree of rapid

consolidation (M&A) among major players in globally, is expected to serve as an

impetus for this growth. Most of the major firms are currently undergoing

regional expansion, both organically and via acquisition most especially into the

high growth sub regions in Africa.

However, we note the awareness of uneven growth amongst these states. On

the back of this, we suspect that attention will be focused majorly on economies

in Africa with the strongest fundamentals for growth.

We suspect that attention

will focused on markets with

the strongest fundamentals

for growth in Africa

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Demographics

Population: 170M (2013est)

Most populous in Africa

c.70% of population < 30 years

Median age: 19yrs

Religion: 45% Christian, 48% Muslim

and 7% indigenous

Economy

Largest economy in Africa

GDP NGN80.09Tri

5yr Avrg. GDP Growth of 6.5%

Largest oil producer in Africa

Beer Market

10yrs Avrg. growth of 10%, 2011

2020 est. CAGR of 5.9%

Installed capacity: >26.9mhl

BCCP: 10Liters

Political Stability

Moderate

3. The Nigerian Brewery Sector Overview

3.1 The Nigerian Beverage Market

Nigeria’s beverage industry is largely dominated by the Beer and Carbonated

Soft drink (CSD). Packaged Juice, Spirit, Wine and Other ‘Ready-to-drink’

beverages (RTDs) cover the remainder. Report by Heineken quoted CSP

magazine and indicated that, of the total beverage volume in Nigeria, 45.29% is

attributed to the beer segment, 42.06% goes to CSDs, Packaged Juice takes

10.29% whilst Spirit, Wine and RTDs takes the remaining 2.35% in 2010.

The Soft Drink Market: The CSD segment of the market is dominated by the

Nigerian bottling company (NBC- bottles Coca-Cola and Fanta brands) given the

long established history of the Coca-Cola Company in the country together with

strong distribution network and aggressive marketing techniques. 7-UP bottling

company, the bottlers of the Pepsi and Mirinda brands is however another

multinational CSD player.

Coca-cola dominates the

CSD segment, but La-Casera

is gaining a lot of ground.

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15.414.3

3.5

0.3 0.3 0.2

0

4

8

12

16

Beer CSD Juice Spirit Wine RTDs

Notable among the domestic players is the La Casera Co, Ltd (formerly known

as Classic Beverages Nigeria Ltd)the producer of the La Casera brand, with

innovative marketing strategy such as beauty contests (Miss La Casera) continue

to gain a distinct proportion of the market. The company recently introduced

the first sugar-free carbonate with real fruit, Latina. According to Euro-monitor,

the company was one of the first to use PET (Polyethylene Terephthalate)

bottles and has introduced a new 'Ice Feel' bottle to raise the stakes.

The Packaged Juice segment: Awareness about Health and Nutritional balance

(better education about nutrition and risk factor embedded in high sugar

consumption which may lead to diabetes, obesity and hypertension) is growing

amongst Nigerians. This has so far led to a sustained growth in the fruit juice

consumption as against CSDs. Other notable factors include busier life style

amongst the rising middle class has left majority with less time to prepare

balance nutrition for their family hence juice consumption is resorted to as a

suitable way of ensuring the intake of essential nutrients.

Also, the sophisticated social life style and the value Nigerians placed on social

occasions also serve as contributory factor driving the growth of juice

consumption amongst Nigerians. Hence, more consumers generally favour

packaged juice to CSDs. Chi Nigeria Ltd (45% volume share) dominates the

segment with varieties of the Chivita brand, ahead of NBC’s 5-Alive brand (35%

volume share). Other players in the segment include GlaxoSmithKline Nigeria

Plc, Dansa Foods, Cway Food & Beverages Co Nig Ltd, Frutta Juice & Services Ltd

and Fumman Foods Industries Nigeria Ltd.

Source: Heineken, CSP

sa

Exhibit 9: Beverage Market Breakdown In Nigeria (mhl) in 2010f

Health and nutritional

awareness is driving

growth… Chi-vita controls

45% market share.

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5.00

7.00

9.00

11.00

13.00

15.00

17.00

19.00

21.00

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E

The Spirit and Wine Segment: A phenomenal game changer in the spirit

segment of the alcoholic drink market was the introduction of Alomo bitters in

2010, an alcoholic herbal drink that challenged the dominance of all other

alcoholic drinks (other spirit) including beer. The product was favoured by the

majority as a result of the perceived medicinal benefits and virility in men

accorded to herbal products.

The product is inexpensive (NGN180 to NGN250) compared to other spirits and

Lagers. Growth in consumption of Alomo was partly responsible for the drag in

the performance of beer in 2012 according to Euro-monitor. As a result of this

trend, Guinness Nigeria Plc (a subsidiary of the Diageo group with key strength

in the spirit segment in Africa) recently launched ‘Orijin bitters’, a blend of herbs

and fruits with bitter-sweet flavor to challenge the dominance of Alomo bitters

in the segment.

3.2 Structure of the Nigerian Beer Market

Growth: Though the history of the Nigerian Beer industry may be traced back to

period prior to the independence of Nigeria. It was the establishment of

Nigerian Breweries limited in 1946 that pioneered brewing in Nigeria. Based on

the report by the Financial Derivative Company (FDC) on the Nigerian beer

market, beer makes up 96% of all alcohol sales in Nigeria, historical data

suggests that beer consumption in Nigeria has been experiencing an average

growth of 10% for the last ten years (2002 – 2012).

CAGR 10%

Exhibit 10: 10Yr Growth path of the Nigerian Beer Market

Source: Heineken, Meristem Research NB: 2013E is based on Meristem Research’s estimate

Alomo Bitters threatens

other alcoholic beverages

including beer… Guinness

introduced Orijin bitters in

reaction

Beer market growth

experienced drags in recent

time compare to historical

average of 10%.

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58%

15%

27%

Beer Segment

Lager

Stout

Malt40%

28%

13%

5%

6%

5%3%

Beer Parlour

Provision Store

Informal Conveniences

Kiosk

Restaurant

Hotel

Others

This growth hinges on the huge demographic features, a population of 170M

people, growing middle class, abundant oil reserves, and an enormous

consumer market. As at 2012 estimate, the value of the Nigerian beer market

pegged at 20mhl. However, as a result of higher cost of living, slowing

discretionary income pressuring spending and insecurity challenges, recent

performance of the sector has recorded a drag. The industry climbed 3% in

2012 compared with 11% in 2011, while the 2013 performance has been

estimated to decline by 3%.

Segmentation and Market Channel: A further breakdown of the Nigerian beer

market indicates that of the total beer consumption in Nigeria, Lager beer takes

58% of the market share; Stout has 27% while 15% goes to Malt. In terms of

consumption channels, majority of Nigeria beer consumers (c.40%) drink in beer

Parlours, 28% through provisional store purchases, 13% via informal

convenience spots, while the rest go through kiosks, restaurants and hotels and

others.

3.3 Market Share: A terrain of two dominant players

The Nigerian brewing space can be approximated as an oligopolistic-duopoly,

with two major players controlling about 90% of the market, while other fringe

players control a thin margin of the market.

Nigerian breweries (NB), without mincing words, is the biggest player in the

sector with a total installed capacity of 15.4mhl (61% volume share). Guinness

Source: Nigeria Breweries

Exhibit 11: Segment Distribution of the Beer Market Nigeria Beer Market Channels

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61%

27%

10%2% Beer Volume Share

NB

Guinness

consolidated

others

Nigeria Plc. (GUINNESS) is the second biggest player (5.5mhl installed brewing

capacity and 27% share), while others include consolidated breweries

(CONSBREW) with 3.7mhl (10% market share), International breweries Plc

(0.5mhl), Champion Breweries (CHAMPION) and Jos Breweries (JOSBREW) are

among the fringe players (2% market share).

Heineken controls over 70%: Heineken N.V Global, with majority stake in NB,

CONSBREW and Champion Breweries Nigeria Plc. control 71% of the Nigerian

beer market. The three companies operate independently in the Nigerian

market, but their operations are consolidated in the financial of Heineken

global. Champion Breweries Nigeria Plc. was fully integrated in 2013 via a

transfer of 57% stake from CONSBREW to Heineken through her wholly owned

subsidiary, Raysum Nig. Ltd.

Heineken recently announced its intention to merge the operations of NB and

CONSBREW. Post merger, both entities are to exist as NB with a wider product

portfolio in both the premium and value segment of the market. It must be

noted that Heineken has been strategic in the operations of both companies in

terms of area of focus. Whilst NB dominates the market in the premium and

mainstream segment of the of the beer market with brands like Gulder, Star

lager and Heineken, CONSBREW plays the same role in the lower end/Savings

segment with cheaper and low income earner friendly brands like ‘33’ Export

lager, Turbo King amongst others.

GUINNESS controls 27% of the Nigerian market: GUINNESS is a subsidiary of

the Diageo Group. The company produces the most popular stout (Guinness

extra stout). The beer maker started operations in Nigeria in 1963, with Lagos as

Heineken controls more than

70% of the market with

interest in NB, CONSBREW

and CHAMPION

Exhibit 12: Nigeria Beer Market Share

Source: Heineken, FDCL, Euro-Monitor

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its first location outside the British Isle to brew the Guinness brand. Currently,

Nigeria is the largest Guinness Stout Market in the world by Net Sales Value.

Guinness has a market share of 27% in Nigeria.

SABMiller threatens dominant players: The latest amongst the global bigwigs in

Nigeria is SABM through its stake in Pabod Breweries Ltd (Port Harcourt) in

2008. In 2012, following the combination of the Castel and SABMiller businesses

in Nigeria and Angola, SABM took operational management of the Castel

Nigerian business, International Breweries (INTBREW) on the 1st of January

2012. Other acquisitions include, Intafact Beverages Limited (Onitsha), Voltic

Nigeria Ltd (Lagos). SABM is the largest beer producer in Africa and 2nd largest

brewer in the world with more than 200 beer brands and some 70,000

employees in over 75 countries.

It must be said that with recent investment of over US$100 million in Nigeria,

SABM is intensifying its penetration into the Nigerian market through strategic

regional approach, the most popular brands currently gaining a lot of patronage

in the country include the Trophy and Hero brands with markets in the South

Western and Eastern parts of Nigeria respectively.

SABM continues to intensify

regional penetration...Trophy

& Hero Lagers are piercing the

western and eastern Nigeria.

Source: Company fillings

Exhibit 13: Global Players in Nigeria 2014

Global players Domestic Subsidiaries Installed capacity

(mhl)

HEINEKEN GLOBAL Nigerian breweries 15.4

Consolidated breweries 3.7

Champion Breweries 0.5

19.6

DIAGEO GROUP Guinness Nig. Plc. 5.5

SABMILLER International breweries 1.8

Pabod Breweries Ltd (PH) na

Intafact Beverages Ltd (Onitsha) na

Voltic Nigeria Ltd (Lagos) na

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Growth Drivers

Growing population

Discresionary Income DemographicsEffective

marketingDistribution network

Acquisition and Expansion

-

10

20

30

40

50

60

70

S/Africa Angola Kenya Namibia Nigeria Tanzania

BCCP

Peer average

Global Avrg.

3.4 Beer Consumption: Nigerians drink-less compared to peers

In terms of beer consumption, Nigeria‘s beer consumption per capita (BCCP)

was estimated at 11 liters in 2012. Though this represents a significant growth

compared to 5 liters in 1999, it is still very low in the context of african peer

average of 36 liters (S/Africa-62liters, Angola-50liters, Kenya-42liters and

Namibia-40liters) and 25.67 liters global average.

3.5 Key growth drivers: The demographic dividend fulcrum

Population: A critical factor driving the beer market growth in Nigeria has been

the huge population of the country. 2013 population estimate stays at

170Million, which puts the country’s consumer market on an amazingly

attractive level.

Exhibit 14: Nigeria Beer Consumption Per Capita (BCCP) in liters 2012

Source: Plato, Euro-monitor, Global Insight

At 11liters per head, the

prospect for beer volume

growth is massive.

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Income: The correlation between the beer consumption and income growth is

positive and significant according to recent studies. Income per head in Nigeria

has been growing reasonably well over the last decade at an average of 7.5%

according to World Bank data, while average growth of the beer market over

the same period correspond to this at 11%. Hence with rising level of disposable

income, discresionary consumption is expected to rise. However, the last two

years have witnessed a huge amount of pressure on consumer spending given

the removal of fuel subsidy, higher cost of living and security challenge which

have all led to the drag in the volume growth amongst major players in the

sector. Nevertheless, we think with election spending and improvement in

security situation, this pressure should ease going forward.

Demographics: Nigerian demographic dividend is another key driver of growth

of the breweries market. The country has a median age of 19years,c.55% of the

population is within the age bracket of 15 to 65years. The age distribution is

bottom heavy with only 2.73% as aged. Middle class is rising and urbanization

rate is expected to maintain a growth rate of 3.75% up till 15. We believe these

features point to the likelihood for beer consumption growth.

Effective Marketing: Marketing and distribution efforts among brewers is

another key growth factor for the industry. Top Management of the two major

players (Nigerian Breweries and Guinness) continue to leverage on strategic

means to market dominance with huge expenditure on marketing and

distributive activities to stay dominant, visible and appealing to the huge

youthful popuation. Sponsorship of football games, advertisements on national

and international events and reality shows are amongst the popular channels

used in reaching the target market. 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.

Distribution Network: In terms of distribution network, NB sustains dominance

with the widest distribution network. The company has a fully integrated route

to the market, (total retail outlets of 525500, 35000 bulk breakers, 2000

wholesalers and 150 key distributors) and brewering plants well spread across

the southern and northern geo-polical zones of the Country. Its major

competitor, Guiness has a distribution network of over 200 Guinness

distribution centers, substantial amount of distributors and a distribution driving

team.

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Major Challenges

Declining consumer spending

Competition from other

Non-Alcoholic beverages

High cost of living

Health awareness

Religiousity

Security challenges

Acquisition and expansion: As noted earlier, industry consolidation is a

recurring affair and a critical success factor in the global brewering sector.

Ability to expand and possibly acquire less dominant players is a major driving

force in increasing market share and maintaining dominance. While the two

leading brewers have leveraged on expansion and CAPEX over the years, the

entrance of SABM with the acquisition of INTBREW and PABOD breweries has

challenged the dominance of the leading two, reinforcing how acquisitions can

be crucial in the development of brewery businesses.

3.6 Major Challenges: Discretionary spending softens

Declining discretionary spending: A recent drag to growth in recent times is the

waning discretionary spending being observed in Nigeria. This is said to have

dipped as a result of partial removal of fuel subsidy in 2012 which has resulted

in higher cost of living, and consequently, less expenditure on discretionary

consumption.

Security challenges: The heightened menace of extremist activities in the

northern part of the country brought about an increase in prices of basic food

stuff and hence increased the cost of living. Also, frequent bombing and

sporadic shooting, has gradually discouraged going to joints and bars that

account for 40% of beer consumption channel. Higher living cost pressurizes

household income and consumption spending, which trickles down to less

demand for beer.

22



Milling

Mashing

Filtering

Boiling

Fermenting

Filtering

Packaging

Distribution

Non-alcoholic beverages: Apart from the lesser spending impact, increasing

competition from non-alcoholic beverages as well as other alcoholic beverages

excluding beers, as noted above (Alomo bitters) continue to challenge the

market share of the beer segment of the beverage industry.

We attribute other challenges dragging the growth of the brewers to factors

such as increasing health consciousness amongst the Nigerian middle class,

drink-drive and drinking age campaigns, level of religious belief and Sharia laws

in some part of the Northern region.

4.0 Value Chain Analysis

4.1 Beer Making Inputs

Major inputs: Key inputs in the preparation beer include Malting grains (Malting

barley, Sorghum and Maize), Hops, yeast and water. Average price of Barley in

the world market has stayed at USD133.90 so far in 2014 compared to over

USD200 in 2013 (12M average). Due to local content strategy, a 5% import duty

BARLEY & SORGHUM WATER

HOPS

YEAST

BOTTLE CAN

Source: Guinness, SABM, Heineken, Meristem research

Exhibit15: Beer Making Value Chain

23



•Barley

•Sorghum

•Maize

Malting Grain

Hop Water Yeast

is imposed on Barley importation. Imported barley, however, still makes up 50%

of consumption among brewers in Nigeria (through a joint purchase agreement

with their parent companies).

Industry sources amonst brewers: Malting grains account for c.40% while

Sorghum constitutes 7% of raw materials amongst major beer makers. NB

currently sources 43% of her raw materials locally but has a target of 60% local

sourcing of malting grains as part of its local content strategy. SABM’s strategic

plans include buying grains from local farmers in a bid to negotiate a tax

reduction agreement with government. The company is currently considering

the use of Cassava as a replacement for malting grain as a way of offering more

affordable beer to Africans. GUINNESS sources Barley majorly from Scotland,

Ireland and Kenya. The company sources for Sorghum majorly from Nigeria,

Ghana and Tanzania.

Nigeria is the largest producer of food sorghum (according to Heineken) which is

particularly attractive to brewers because of its malting quality. NB leverages on

local sorghum and continues to invest in research into development of better

capabilities. Hence, the company has maintained cost leadership amongst

brewers. Recent data indicate moderating prices of key inputs, so we do not

see any major risk to cost structure in the short to medium term. We expect

brewers to continue to capitalize on innovation to minimise costs.

By-products: Spent inputs from beer making production process serve as

animal feeds (spent grains), fertilizers (Spent Hops), Irrigation (Water) and yeast

used for fermentation serves as input in Health products.

Animal feeds Fertilizers Health Product Irrigation

BY PRODUCTS

Source: Meristem Research

Exhibit 16: Beer Making Ingredients + By Products

24



100

150

200

250

300

2010 10 10 11 11 11 12 12 12 13 13 13 2014

Barley ($/mt) Sorghum ($/mt)

Packaging/ Bottling: A recent trend in Nigerian is the growth in the amount of

Canned beer. Compare to 2006 with 100% bottle package, canned beer has

grown to 8% as at 2011. Currently 75% of Cans in Nigeria are for malted drinks,

this proportion is followed by beer and then CSD.

Local Aluminium Can Companies: Establishment of GZ Industries (GZI), the first

Aluminium can beverage company in Nigeria has reduced the amount of

imported can into the country and has enhanced local content strategy. Prior to

the establishment of GZI, 100% of can consumed in Nigeria were imported. The

company currently has a 1.4bn unit of can production capacity per anum with a

target of 1.6bn units by 2016.

The company recently expanded its operation into Aba (Eastern Nigeria) to

meet the needs in the eastern part of the country, where major brewers are

expanding or building new capacity to meet the need of its customers (beer

makers). We think this is a great development for the breweries sector as

expansion of the can producer is expected indirectly enhance the cost profile

in the sector. However, the 100% dependence of GZI on global price of

aluminium exposes beer makers to indirect risks of global price volatility.

Exhibit17: Global price of Malted grains

Source: World Bank

GZ Industries (GZI), the first

and the only Aluminum Can

beverage company in Nigeria

Exhibit18: PACKAGING

DATE BOTTLE CAN

2006 100% 0%

2009 97% 3%

2011 92% 8%

Source: Heineken

25



1300

1500

1700

1900

2100

2300

2500

2700

2900

2010 10 10 11 11 11 12 12 12 13 13 13 2014

Aluminum ($/mt)

Exhibit 19: Global price of Aluminium (USD)

Source: World Bank

26



•The buyers of beer are represented by alcoholic beverage wholesalers, supermarkets, as well as beer parlours, restaurants and clubs.

•There is a large number of buyers

•The buyers are able to switch brands easily

•Buyers' power is high.

•High buyers’ power is offset by varying preferences of the consumers

Buyer Power -Moderate

•The power of suppliers is Moderate

•Beer producers need the same input to produce beer (Malted barley, hops, sugar and water)

•No raw materials differentiation.

•Innovation and creativity are the key sources competitive advantage.

Supplier Power-Moderate

•This threat is moderate given that major regulation is the possession of the license requirements to operate in Nigeria.

•Apart from states with Sharia laws that forbid alcoholic products, there are no strict law regulations on alcoholic products in Nigeria.

•Though CAPEX requirement is huge, itis not a major challenge to global player with eyes on developing markets.

Threat of New Entrants-Moderate

•This is high given a large diversity of substitutes to beer

•Other alcoholic and non-alcoholic beverages and soft drinks (CSD, Wines, spirit and jucie).

•Cheaper prices of other alcoholic beverages

•Rising health concerns of the consumers.

Threat of Substitutes-High

•Rivalry is high

•Industry is oligopolistic

•Two dominant players have more than 90% market share.

•Other smaller players are gradually establishing regional visibility.

Degree of Rivalry-High

4.2 Five Competitive Forces Shaping the Beer Industry In Nigeria

27



4.3 Financial Ratio analysis

Cost to sales ratio: 5-year average cost to sales ratio for the Nigerian beer

market settles at 52.63%. Common size analysis of the major players indicates

that NB holds cost leadership (51% 5Yr average cost to sales) compared to

GUINNESS (53.46% 5Yr average cost to sales).

OPEX Margin: The Nigerian beer market is highly advert intensive, with keen

competition between dominant player to expand or retain market share. As a

result of this, OPEX margin (sales and Distribution expenses) averaged 24.51%

among key players. 5yr average OPEX margin shows that NB stayed dominant in

terms of OPEX effciency with 23.54%, compare to GUINNES (25.47%) .

Profitability: Industry net-margin as proxied by the 5yr average of the two

dominant firms stood at 15.25%. Return on Equity (ROE) averaged 44.36% while

Return on total Asset averaged 19.69% for the sector. In all NB show better

operational efficiency compare to GUINNESS with all its (NB) key performance

metric showing better effeciency compare to the industry. Overall, Return on

Equity (ROE) is driven largely by Net profit margin which relies majorly on cost

effciency.

Ratio Analysis NB GUINNESS INTBREW Average

Cost to Sales Ratio 51.80% 53.46% 61.45% 55.57%

Gross Profit Margin 48.20% 46.54% 38.55% 44.43%

OPEX Margin 23.54% 25.47% 28.37% 25.79%

ROAA 21.93% 17.44% 0.71% 13.36%

Current Ratio (x) 0.75 1.13 0.95 0.94

Quick Ratio (x) 0.54 0.83 0.88 0.75

Cash ratio (x) 0.21 0.3 0.07 0.19

Inventory turnover (x) 4.87 3.54 3.12 3.84

ROE 49.40% 39.32% -12.07% 25.55%

Net Margin 16.19% 14.32% -0.94% 9.86%

Asset Turnover (x) 1.25 1.18 0.58 1.00

Leverage (x) 2.46 2.36 3.98 2.93

EBITDA Margin 30.21% 23.52% 8.67% 20.80%

Operating profit (EBIT) margin 25.05% 21.57% 11.24% 19.29%

Interest burden 0.95 0.95 1.63 1.18

Interest Coverage (X) 54.97 25.14 41.86 40.66

Tax burden 0.68 0.7 0.14 0.51

Interest coverage 54.97 25.39 40.35 40.24

Exhibit 20: Industry Ratio comparison (5-Year Average)

Source: Meristem Research 2014

28



5. Industry Prospect and Valuation 5.1 Valuation

Seven brewing companies are listed on the Nigerian stock exchange (NSE), with

NGN1.49trillion market capitalization. Together, they make up 12.37% of total

market capitalization of the NSE. Of the seven listed brewers NB, GUINNESS and

INTBREW represent 99% of the brewer market cap. Consequent on this, we

adopt NB, GUINNESS and INTBREW as proxies to represent the Nigerian brewing

space.

By relative valuation, current earnings multiples put sector average PE ratio at

36.03x, this is ahead of three years historical average of 27.79x. While Book

value multiple suggests a current PBV ratio of 9.57x compared to 3 yr average

PBV ratio of 7.87x.

Though PE ratio suggests that the sector is over priced compared to historical

price, whilst PBV of 9.57x vs 7.87x historical average support this position

further, we think the sector may be fairly over price at current price. Dividend

yield is however trailing the market at 2.70% vs. market yield of 3.47%.

We think the sector may be

fairly over price at current

price as current PE of 36.03x is

ahead of average PE of 27.79

Tickers Div. Yield Average P/E Current PE Average P/B current P/B

GUINNESS 3.89% 27.77x 31.89x 7.91 7.18x

NB 3.07% 25.72x 30.83x 12.27 12.99x

INTBREW 1.14% 29.90x 45.38x 3.43 8.55x

Sector Average

2.70% 27.79x 36.03x 7.87x 9.57x

Exhibit 21: Sector Valuation

Source: Meristem research

29



Beer Vol.

Beer Vol. = 2.01 PCIR² = 0.55

-

5.0

10.0

15.0

20.0

25.0

6.76 7.26 7.83 8.04 8.32 8.62 8.89 9.26 9.73 10.16 10.52

Market value Linear (Market value)

5.2 Industry prospects

Despite recent slowing growth in the sector, we see huge potential for growth

going forward. Exhibit 22 below show the relationship between beer market

value growth and Per Capita income (PCI) growth in Nigeria.

Our ten years correlation analysis between beer market growth and increasing

per capital income established a strong positive correlation (0.97) between

both variables.This is further butressed the slope and R-Square value of 2.01

and 55% respectively. In sum, these metrics indicate that beer market

expansion stays strongly consistent with Per Capita income (PCI) growth in

Nigeria.

Also, the fundamentals of the Nigerian Economy remain very strong. According

to NBS, Population growth is projected to grow at 2.3%. This puts the country’s

population at over 220M by 2025. The UN forecasts that Nigeria’s population

will surpass that of the US by 2050. Middle class and Urbanisation rate are

expanding significantly, and age ditribution favours a youthful workforce (more

than 55% between age 15 to 65 years), implying increasing demographic

divdends for the country.

These numbers point to the fact that Nigeria remains a huge consumer market

for the beer sector to grow, and we expect this to translate into a massive

opportunity for growth.

Beer Volume growth is

consistent with Per Capita

income growth in Nigeria.

Exhibit 22: Correlation Analysis of Beer Market Volume vs.PCI (USD) in Nigeria (2002-2012)

Source: World Bank, Heineken, Meristem research

30



140

Million

170

220

120

130

140

150

160

170

180

190

200

2005 06 07 08 09 10 11 12 13 2025

Mill

ion

s

3437

41 42

54

63

7181

85

9096

103

15

25

35

45

55

65

75

85

95

105

115

2010 2011 2012 2013f 2014f 2015f 2016f 2017ftr

illio

n

Old GDP New GDP

Macro Economic outlook: Nigeria’s GDP has sustained an average growth rate

of 6.5% over the last 7 years. Following the rebasing of the GDP of the country,

Nigeria became the largest economy in Africa with a GDP figure of USD510,

ahead of South Africa and 21st in the World. Per Capita income is estimated at

USD2,760 The services sector emerged as the major driver of the economy with

53% of sector breakdown. Agric and Industry now take 22% and 25% share

accordingly. Recent commitment of Governemnt to revive key sub- component

in the services sectors indicates that services sector growth may be larger than

anticipated (7.72%). Based on the foregoing we strongly believe that the

output level will continue to expand by over 6% for the next 5 years and this is

expected to impact the Beer market growth positively.

5.3 Where do we see the beer market going forward? Given the established strong positive correlation (relationship) between beer

market growth and income per head, juxtaposing this with the attractive

fundamentals of the Nigerian economy, we maintain that there exists a

significant positive relationship between income growth and Beer market

performance. Against this background, we project an annual growth rate of 5%

for the breweries sector going forward. Consequently, our projection put 5-

years beer market growth at 24.25mhl.

GDP is expected to grow by

over 6% for the next 5-yrs…

expected to impact beer

market positively

Our projection puts 5-year

beer market growth at

24.25mhl

Exhibit 23:Population Growth & Forecast Nigeria GDP (trn NGN) + Forecast

Source: NBS, World Bank

2.3% Growth

6.5% growth

31



14.64

19

24.25

12

14

16

18

20

22

24

26

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

mh

l

6. Company Analysis

6.1 Quoted Brewers

There are seven quoted breweries company on the Nigerian stock exchange.

These include Nigerian Breweries Plc (NB), Guinness Nigeria Plc (GUINNESS),

Internatinal Breweries Plc (INTBREW), which are the three largest in terms of

market capitalization. Others include Champion breweries Plc. (CHAMPION), Jos

Breweries (JOSBREW), Golden Guinea Breweries Plc (GOLDBREW) and Premier

breweries (PREMBREW). All together, the seven listed beer producers have a

total market capitalization of NGN1.75trillion representing 12.36% of the NSE

market capitalization.

We further categorize the aforementioned beer makers into Large Cap (market

capitalization of NGN100bn and above), Mid Cap (Market capitalization

between NGN1bn to NGN100bn) and Small Cap (Market Capitalization less

than NGN100bn) brewers, based on market capitalization of these company.

Based on this classification, we classify NB and GUINNESS as large cap, INTBREW

CHAMPION and JOSBREW fell within the Mid Cap criteria while PREMBREW and

GOLDBREW are grouped as the Small Cap beer makers.

Exhibit 24: Nigeria Market Growth + 5Yr forcast (mhl)

Source: World Bank, Heineken, Meristem research

CAGR 5%

32



The remainder of this report analyses the performance of each of these

companies. Though the availability of information on the Mid to Small Cap

stocks was a constraint, efforts were made to do a thorough overview of each of

these companies as mentioned above.

Source: NSE, Meristem Research

Exhibit 25: QUOTED BREWERIES FIRMS

Ticker Share

Outstanding (bn) Mkt. Price Mkt. Cap (bn’NGN’) Mkt. Cap (%) Rating

Large Cap

NB 7.56 178.20 1,347.19 77.04% HOLD

GUINNESS 1.51 198 298.98 17.10% HOLD

Mid Cap

INTBREW 3.26 28.05 91.44 5.23% SELL

CHAMPION 0.9 9.67 8.70 0.50% UNRATED

JOSBREW 0.56 2.58 1.44 0.08% UNRATED

Small Cap

GOLDBREW 0.27 0.71 0.19 0.01% UNRATED

PREMBREW 0.98 0.77 0.75 0.04% UNRATED

1,748.71 100.00%

Source: NSE, Meristem research

33



0

1

2

3

4

5

6

2007 08 09 10 11 12 13 14

NB NSEASI

Target Price: NGN169.12

Rating: HOLD

Market Information NGN USD

Current Price 177.09 1.11 52wks high 181.03 1.14 52wks low 141.55 0.89

Mkt Cap 'bn 1,339 8.41 Average Value (mn) 278.83 1.75 Average vol.(mn) 1.709 0.01 S/Outstanding (bn) 7.563

Valuation Metrics NGN

Market Price 174.43 2014EPS

5.70

2014BVPS

14.86

12-month TP (N)

169.12

Capital Gain

-4.50%

Dividend Yield (2014)

2.92%

Total Return expected

-1.58%

Ratings HOLD

P/E

5.70x

P/BV 14.86x

Beta

1.32 COE

20.77%

ROE - 5 year avrg. 49.40% ROE - 2014 40.48%

Div. Payout 5 year avrg. 70.35% Div. Payout – 2014e 80..0%

PRICE TRAJECTORY

Sustaining Dominance through Strategic Expansion

Nigerian Breweries Plc. NSE: NB; Bloomberg; NB: NL

With an installed brewing capacity of 15.4mhl/pa and continuous capacity

improvement. The beer maker has a market share of c.60% in the Nigerian beer

industry. Following the recent acquisition of Sona Systems Associates Business

Management Limited and Life Breweries Company Limited from Heineken

International B.V, the premium beer maker has indicated the proposal to merge its

operation with that of Consolidated Breweries Plc, a sister firm in the value segment

of the sector. The market share of NB is expected to jump to over 70% once the

merger is concluded.

5.74% turnover growth in line with expectation: In the last 2014H1 result, NB posted

a turnover growth of 5.74% (NGN141.49bn vs. NGN133.82bn Q2:2013) despite issues

around keen competition, sector slowing growth due to pressured consumer

discretionary income and security challenges in the northern part of the country. We

attribute the sustained impressive performance of the premium beer maker to

increasing operating efficiency and well spread route to market.

Cost of sales increased by 5.79% year-on-year (NGN71.35bn Q2:2014 vs. NGN67.44bn

in Q2:2013) compared with most recent five year average growth of 12.35%;

suggesting improvement in cost management. Also, Cost to sales ratio settled at

50.42% in the period (vs. 50.40% in erstwhile period) to further buttress the

aforementioned most especially when compared to peer average of 52.63%., We

pegged our full year cost to sales ratio at 49.19% on the back of improving cost

management.

Earnings growth buoyed by declining finance cost: Juxtaposing revenue growth with

cost efficiency, NB posted a double-digit earnings growth, i.e. PBT and PAT growth of

23.95% and 15.53% respectively. The result indicates that earnings expansion was

driven not only by operating efficiency, but also by 37.53% decline (NGN2.37bn vs.

NGN3.82bn in Q2:2013) in interest expense and 60.12% increase in finance income

(NGN0.602bn vs. NGN0.376bn in prior period).

NB is rated a ‘Hold’ at current price: We adopt a blend of dividend discount model

(DDM) and relative pricing valuation to arrive at a fair value for NB. The company’s

consistent dividend payout history of 70.35% (5-year historical average) informed our

adoption of DDM model, while relative pricing model factors in some sentiment on

the stock. In all, valuation put target price at NGN169.12 which suggests an upward

review from NGN156.11; but a downside potential of 4.50% compared to current

price of NGN177.09. We therefore maintain our ‘HOLD’ rating on the stock.

34



HEINEKEN54%

STANBIC NOMINEES

32%

OTHERS14%

6.2.1 Company Profile

NB has over 6 decades history of operations in the Nigerian brewing space, the

beer maker has sustained the position of both the pioneer and largest brewing

company in the country. A subsidiary of Heineken N.V, one of the top four

Brewing giants in the world. Hence, Heineken’s stake in NB is strategic to its

business priorities of capturing opportunities in Africa and its growth drive into

emerging economies (EMs) with a 55% beer volume in EMs vs. 45% in

developed markets.

Heineken strategy in emerging market is captured in its 8 cardinal points of;

investing to build strong brand, optimizing route to the market, build strong

local brand, investing ahead of the curve, build international premium segment,

engage with government, ‘brewing a better future’, and exploring new market

opportunity.

Given the investment of Heineken Global in NB (54%) and a total installed

brewing capacity of 15.4mhl/pa, NB sustained dominance in the Nigerian beer

market in terms of market value and brewing plants. Heineken has further

indicated its intention to merge the operations of Nigerian Breweries Plc and

Consolidated Breweries Plc (Another subsidiary of Heineken in Nigeria). This

merger is expected to bring to total install capacity of NB to 19.1mhl and total

market share to 71%. Both entities will exist as Nigerian Breweries Plc. post the

merger.

Currently, the premium brewer operates with 10 brewing and malting plants

(Kakuri brewery, Kudenda brewery and Kudenda malting plant in the Northern

part of Nigeria, Lagos, Ota and Ibadan Breweries in the south-western part of

Nigeria, Onitsha, Aba and Ama breweries and malting plants in south east

Nigeria) to retain 61% market share.

Exhibit 26: Geographical Spread of NB’s Brewing and Malting Plants Shareholding Structure


35



In terms of market capitalization and holding structure, NB is one of the top

most capitalized stocks listed on the NSE with a total of NGN1.16trillion,

representing 9.30% of total market capitalization. The shareholding structure of

NB has Heineken with 54% majority holding, Stanbic Nominees as the second

largest shareholder with 32% while other holders share the remaining 14%.

By product portfolio, the company operates a broad base product portfolio

across all the segments of the market from international premium (IPS),

national premium (NPS) to mainstream and savings segment. In the IPS

segment, Heineken lager sells at NGN260, Gulder lager beer sells at NGN210 in

the NPS segment, while Star lager (NGN200), Legend extra stout (NGN200) and

Maltina-non-alcoholic malt drink (NGN100/120) sell within the mainstream

segment. Others include Amstel malta, Goldenberg, Malta gold, Climax and

Fayrouz. The most recent innovation to the portfolio is the introduction of Star

Lite Ice Cold Filtered lager, an extension line of Star lager. “The temperature

sensitive labeled beer contains no additives and preservatives and is a healthy

offering for all our health conscious consumers”, according to management.

6.2.2 Route to the Market

Route to the market: NB has a fully integrated route to the market that links

production to retail oulets via key partners. This is conducted through direct

sales from 150 key distributors and 2000 wholesalers to 52500 retail outlets

through a channel of 35000 bulk breakers. The company continues to grow

Exhibit 27: Product portfolio


36



•NIG.BREWERIES PLC

10 Brewering and Malting Plants

•150 Key Distributors

•2000 Whole Salers

35000 Bulk Breakers

•525000

•Retail Outlets

CUSTOMERS

cooling capacities in its outlets to give its customers increasing optimal

satisfaction. Overall, 23% of the outlets are located in lagos, 31% in South-West,

16% in the South, 10% in the East and 20% across the Northern region. This is

further supported with customer and consumer targeted reality shows for each

of the brands to drive sales across each of the brand portfolios. Notable among

these are, Maltina Dance All, Gulder Ultimate Search, Star Time,Real Deal,

Heineken’s sponsorship of the UEFA Champions League and the most recent

hosting of the UEFA cup in Eko Hotel and Suites here in Lagos to sustain

consumers’ loyalty.

6.2.3 Performance+ Outlook

We note the sustained dominance of Nigerian breweries Plc. in the the Nigerian

market and the impact of the support of Heineken global’s commercial

expertise on the performance of the Nigerian brewering giant. We think the

enhanced route to the market coupled with the company’s continuous

investment in assets, people and brand innovation will continue to uphold

future performance despite the recent softness in consumer discretionary

spending.

Going forward, we see the performance of the company to be driven largely by

the proposed merger with Consolidated Breweries Plc. This is given the fact

that CONSBREW operates in the Value segment of the beer market which is

currently driving growth in the sector.Based on the foregoing, while we await

the updates on the outcome of the merger arrangment, we expect NB to sustain

a topline growth of over 7%, based on a 10.34% five year CAGR growth.

Source: Heineken presentation.

Exhibit 28: Route to the market

37



0%

5%

10%

15%

20%

25%

30%

150

170

190

210

230

250

270

290

310

330

350

2009 2010 2011 2012 2013 2014 2015 2016

Mill

ion

s

Turnover Turnover growth

0%

5%

10%

15%

20%

25%

30%

0

10

20

30

40

50

60

70

2009 2010 2011 2012 2013 2014 2015 2016

Mill

ion

s PAT PAT Growth

We think NB will continue to leverage on operational efficiency to improve

earnings growth. Our 5 years projection puts the company’s EBIT margin at

28.24% vs. 25.05% 5 years historical average. PBT and PAT are expected to

expand by 9.82% and 10.18% accordingly.

Exhibit 29: Historical & Forecast Turnover vs. Growth Rate Historical & Forecast PAT vs. Net Margin

Source: Company’s fillings, Meristem research

38



Exhibit 30: FINANCIALS and RATIO (Million’NGN)(HISTORICAL+FORECAST

NIGERIAN BREWERIES PLC 2011 2012 2013 2014f 2015f 2016f

Key Headlines FORECAST HORIZON

Turnover 230.12 252.67 268.61 287.42 308.97 331.37

Gross profit 109.76 125.45 136.48 145.86 157.58 169.83

EBITDA 64.67 80.77 90.36 92.86 100.73 110.84

Operating Profit (EBIT) 56.65 63.93 69.17 78.92 85.81 94.92

Profit before Tax 56.37 55.62 62.24 71.77 78.79 87.43

Profit After Tax 38.03 38.04 43.08 49.49 54.69 61.09

Non-current Asset 153.14 196.77 207.47 209.72 224.40 237.93

Total Current Asset 63.24 63.24 63.24 63.24 63.24 63.24

Total Asset 216.37 253.63 252.76 269.87 288.76 308.25

Current Liabilities 72.21 72.21 72.21 72.21 72.21 72.21

Total non-current Liabilities 66.10 66.10 66.10 66.10 66.10 66.10

Total Liability 138.31 138.31 138.31 138.31 138.31 138.31

Net Asset 78.07 93.45 112.36 122.26 133.20 145.41

Cost to Sales Ratio 52.30% 50.35% 49.19% 49.25% 49.00% 48.75%

Gross Profit Margin 47.70% 49.65% 50.81% 50.75% 51.00% 51.25%

OPEX Margin 23.23% 25.14% 25.83% 23.49% 23.43% 22.81%

ROAE 59.30% 44.36% 41.86% 42.19% 42.82% 43.85%

ROAA 22.99% 16.19% 17.01% 18.94% 19.58% 20.46%

Current Ratio (x) 0.88 0.65 0.45 0.63 0.78 1.01

Quick Ratio (x) 0.57 0.55 0.36 0.52 0.53 0.70

Cash ratio (x) 0.30 0.11 0.10 0.11 0.24 0.31

Inventory turnover (x) 4.94 4.88 5.83 5.94 5.41 5.40

Du-Pont Analysis

ROE 48.71% 40.71% 38.34% 40.48% 41.06% 42.01%

Net Margin 16.52% 15.06% 16.04% 17.22% 17.70% 18.43%

Asset Turnover (x) 1.06 1.00 1.06 1.07 1.07 1.08

Leverage (x) 2.77 2.71 2.25 2.21 2.17 2.12

EBITDA Margin 28.10% 31.97% 33.64% 32.31% 32.60% 33.45%

Operating profit (EBIT) margin 24.62% 25.30% 25.75% 27.46% 27.77% 28.64%

Interest burden 1.00 0.87 0.90 0.91 0.92 0.92

Interest Coverage (X) 35.31 7.21 9.24 10.17 11.11 11.46

Tax burden 0.67 0.68 0.69 0.69 0.69 0.70

Interest coverage 35.31 7.21 9.24 10.17 11.11 11.46

Source: Company fillings, Meristem forecasts

39



0.00

0.50

1.00

1.50

2.00

2.50

3.00

2007 08 09 10 11 12 13 14

GUINNESS NSEASI


Rating: HOLD

Market Information

NGN USD

Current Price 200 1.29 52wks high 293.6 1.84 52wks low 161 1.07

Mkt Cap 'bn 301.2 1.94 Average Value (mn) 88.25 0.55 Average vol.(mn) 0.346

S/Outstanding (bn) 1.506

Valuation Metrics NGN

Market Price 200.00 2014eEPS

7.88

2014eBVPS

30.57

12-month TP (NGN) 199.2 Capital Gain

-0.40%

Dividend Yield (2014e)

4.30% Total Return expected

3.90%

Ratings HOLD

P/E

28.89x

P/BV 9.21x

Beta

0.72 COE

16.99%

ROE - 5 year avrg. 38.04% ROE - 2013 64.85%

Div. Payout Rate- 5 year avrg. 85.40% Dividend Payout Rate - 2013 88.85%

PRICE TRAJECTORY

Beset by Performance drag

Guinness Nigeria Plc. NSE: GUINNESS; Bloomberg; GUINNESS: NL

Guinness operates as the second largest brewer in the country (after Nigerian

breweries Plc), with operating plants in four sites, (Ogba and Ikeja in Lagos, as well

as Benin and Aba). In the last two years, GUINNESS launched five innovative

products to support its weakening performance (Malta Guinness Low Sugar, Dubic

Extra Lager, SNAPP, Alvaro and the recent Orijin) in a campaign tagged the ‘colourful

world of more’. In order to enhance revenue and profit, the company has invested

NGN52bn to expand its breweries and distribution network. Although we expect

these huge investments to begin to strengthen performance, recent numbers

indicate sustained performance drags.

Dragging Performance depresses Bottom-line: The 9M Earning releases of the

premium brewer shows that revenue tumbled by 11.40% (NGN78.019bn vs.

NGN88.059bn in previous period) yet again. With this, the beer maker has recorded

three quarters of consecutive reduction in revenue (5.41% in 2014:Q1 and 13.34%

in 2014:Q2). Though management attributed this performance drag to sustained

softness in consumer discretionary spending, insecurity in the north and pricing

review, we suspect that keen competition in the Nigerian brewing space may be a

major factor responsible for the slowness in growth of the beer producer. The fact

that Nigerian breweries (GUINNESS’ major competitor) in the sector continues to

sustain top line growth despite the challenges in the industry buttresses this fact.

Slowing Revenue Growth Continues to Pressure Earnings: Despite declining top-

line, the company’s nine month performance indicates that the brewer has

recorded improving cost of sale (NGN41.680bn vs. NGN48.110bn), representing

13.37% decrease in cost of production. This is also in line with the half year result of

the company, with a 15.65% slip in cost of sales. OPEX (NGN26.493bn vs.

NGN26.763bn) and finance charges (NGN2.597bn vs. NGN2.528bn) recorded

12Month marginal changes of -1.01% and 2.71% accordingly.

Shrinking turnover accounts for the major pressure on bottom line: With sustained

decline in revenue, PBT (NGN7.824BN vs. NGN11.234bn) and PAT (NGN5.943bn

vs.7.633) contracted further by 30.36% and 22.14% respectively. While EPS

followed suit with similar margin (22%) decline from NGN5.07 per share in previous

period to NGN3.95 currently.

The counter is rated a ‘Hold’ at current price: We adopted a blend of DDM and

price multiples to estimate the intrinsic value of GUINNESS. On a dividend payout

assumption of 85% based on historical performance, our valuation model suggests a

12 month target price of NGN 199.20, implying an upside of -0.40% to current price

at NGN200. Hence, we recommend a HOLD.

40



Guinness Oversea

Ltd46%Others

46%

Atlantaf8%


GUINNESS is the second largest brewer in Nigeria. The company started

production in Nigeria following the establishment of the first brewing plant in

Lagos outside the British Isles In 1963. In 1965, Guinness Nigeria was listed on

the Nigerian Stock Exchange. With consistent growth of Guinness Stout and

Harp Lager beer in the Nigerian market, GUINNESS has expanded its brewing

plant from just one in Lagos to a total of four across Lagos (Ogba and Ikeja),

Benin and Aba in Abia state. The Company expanded its brewing capacity in

Benin and Ogba in 2011 to meet the growing demand of its consumers.

GUINNESS is a subsidiary to the Diageo Group (46% stake), the fourth largest

brewer in Africa and a world's leading premium drinks producer with a broad

base portfolio of spirits, beers and wines with popular brands like Johnnie

Walker, Crown Royal, J&B, Windsor, Buchanan's and Bushmills whiskies,

Smirnoff, Ciroc and Ketel One vodkas, Baileys, Captain Morgan, Tanqueray and

Guinness. Guinness Nigeria remains Diageo’s largest market for the sale of the

GUINNESS stout brand.

In terms of market capitalization and holding structure, GUINNESS represents

2.18% of NSE market capitalization with a market cap of NGN 301.2. While 46%

of the shares of the premium brewer is held by its parent company, Guinness

Oversea Ltd; other major stake holders include Atlantaf (8%) and the Nigerian

public (46%).

Exhibit 31: Geographical Spread of GUINNESS Brewing Plants Shareholding Structure


41



By installed capacity, GUINNESS holds the position of the second biggest player

in Nigeria with a total installed capacity of 5.5mhl, operated via its four brewing

plants in Lagos, Benin and Aba.

Product portfolio: The company’s products include, Guinness Foreign Extra

Stout, Guinness Extra Smooth, Malta Guinness, and Harp Lager beer. Other

brands include Gordon’s Spark, Smirnoff Ice, Armstrong Dark Ale, Satzenbrau

Pilsner, Top Malt, Harp Lime, and more recently introduced Malta Guinness Low

Sugar. In response to the competition in the industry and the growing

challenges resulting from volume softness and slowing consumption the

company recently launched a number of innovative products to support its

performance (Malta Guinness Low Sugar, Dubic Extra Lager, SNAPP, Alvaro and

Orijin).


Route to the market: The overall goal of increasing the availability of its brands

in key outlets is the major thrust of the company’s strategy to increase market

share. The company intends to achieve this by increasing its direct coverage by

increasing the number of its sales personnel as well as dedicated teams to drive

distribution, and Increase availability in rural areas. The brewer boasts of over

200 Guinness distribution centers and a plan to continue to increase the

number of distributors. Other initiatives include, improving the efficiency and

effectiveness of distributors, sales force and sales organizations to enhance

turnover. Sufficient distributors’ funding and financing scheme, and new credit

terms are other means the company adopts for working capital management.

Apart from the above, GUINNESS also tries to stay in the sights of consumers

through sponsorship of popular events like the Barclay’s Premier League, FIFA


Exhibit32: Product portfolio

Source: Company’s filings

42



Outlet Coverage

•Increased availability of brands & share in key outlets

•Substantially increased direct coverage

•Increase in sales people

•Pilot further increases in Lagos

Rural Distribution

•Increase availability in rural areas

•Over 200 Guinness Distribution Centers

•Substantial rise in number of distributors

•Dedicated teams driving distribution

Off Trade Mgt Increase

•Share in the growing off trade channel

•Dedicated Key Account Structure for modern retail

•Piloting alternative off trade route to consumer

Sales Effectiveness

•Improving the efficiency of distributors sales force

•Improve the efficiency & effectiveness of sales organization

•Sales Academy

Working Capital

•Sufficient distributor funding to support growth ambition

•Distributor financing scheme

•New Credit Terms

World cup and the likes. With this, the company continues to catch the

awareness of its teeming consumers via beer parlours, viewing centers and

other sporting gatherings.

6.3.3 Performance outlook Guinness has invested NGN52bn in the last three years to expand its breweries

and distribution network. Recent (last two years) performance of the company

has not been impressive, owing partly to growing competition, slowing

consumer spending etc. which were noted earlier in this report. However, we

expect huge CAPEX and recent innovative products to strengthen performance

going forward. We also expect election spending to improve discretionary

spending. Based on this background, we anticipate that Guinness will grow top-

line by a modest 5% going forward. This is further supported by the company’s

6.65% historical 5 year revenue CAGR.

Earnings: As stated above, Guinness has invested CAPEX worth NGN52bn in

plant and distribution expansion in the last 3 years. Earnings in this period were

strained by increased finance charges attributable to this investment.

Nevertheless, we expect Guinness to deleverage in the short to medium term, if

this play out as expected, moderating finance cost should begin to impact

positively on earnings going forward. On the back of this, we foresee the

premium brewer growing Net earnings by 9.53% on the average, for the next

5years.

Exhibit 33: Route to the market


43



-10%

0%

10%

20%

30%

105

110

115

120

125

130

2010 11 12 13 14e 15f 16f

Mill

ion

s

Turnover turnover growth

0%

10%

20%

30%

40%

50%

1

3

5

7

9

11

13

15

17

19

2010 11 12 13 14e 15f 16f

Mill

ion

s

Profit After Tax Net Margin

Exhibit 34: FINANCIALS and RATIO (Million’NGN)(HISTORICAL+FORECAST

Source: Company fillings, Meristem research

Exhibit 34: Historical & Forecast Turnover vs. Growth Rate Historical & Forecast PAT vs. Net Margin

GUINNESS NIGERIA PLC 2012 2013 2014e 2015f 2016f 2017f


Turnover 116.46 122.46 114.50 118.22 124.14 130.96

Gross profit 55.18 56.08 53.82 56.16 58.96 62.47

EBITDA 31.39 29.16 30.61 30.31 31.65 32.86



Profit After Tax 14.21 11.86 14.15 15.67 16.04 16.85



Total Asset 106.01 121.06 115.66 118.82 122.91 128.40



Total Liability 67.40 75.02 67.50 68.31 69.99 72.95

Net Asset 39 46 48 50.51 52.92 55.45



OPEX Margin 29.22% 29.62% 29.27% 29.45% 29.15% 29.18%

ROAE 36.03% 28.03% 30.05% 31.77% 31.01% 31.10%

ROAA 14.34% 10.45% 11.96% 13.37% 13.27% 13.41%

Current Ratio (x) 0.64 0.63 1.68 1.33 1.20 1.45

Quick Ratio (x) 0.53 0.57 1.21 0.96 0.86 1.06

Cash ratio (x) 0.11 0.06 0.47 0.37 0.34 0.39


Du-Pont Analysis

ROE 36.81% 25.77% 29.39% 31.03% 30.30% 30.39%

Net Margin 12.21% 9.69% 12.36% 13.26% 12.92% 12.87%

Asset Turnover (x) 1.10 1.01 0.99 1.00 1.01 1.02

Leverage (x) 2.75 2.63 2.40 2.35 2.32 2.32

EBITDA Margin 26.95% 23.81% 26.73% 25.64% 25.50% 25.09%

Operating profit (EBIT) margin 18.80% 16.83% 18.43% 18.75% 18.85% 19.02%

Interest burden 0.93 0.83 0.99 1.04 1.01 0.99


Tax burden 0.70 0.70 0.68 0.68 0.68 0.68


Source: Company fillings, Meristem forecasts

44



0.80

0.90

1.00

1.10

1.20

1.30

1.40

Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14

NSEASI INTBREW


Rating: SELL

Valuation Metrics

NGN

Market Price

28.05 2014EPS

0.65

2014BVPS

3.45 Target Price

21.22

Capital Gain

24.4% Dividend Yield (2014)

1.14%

Total Return expected

-23.2%

Ratings SELL

P/E

43.5x

P/BV 8.68x

Beta

0.64

COE

16.77%

ROE - 5 year avg. 21.69% ROE – 2014 18.7%

Div Payout Rate-5 yr avg.

41.1%

Div Payout Rate – 2014 50.0%

Market Information

NGN USD

Current Price 28.05 0.18

52wks high 30.01 0.19

52wks low 18 0.12

Mkt Cap 'bn 92.00 0.57

Average Value (mn) 20.03 0.13

Average vol.(mn) 0.85 S/Outstanding (bn) 3.263

PRICE TRAJECTORY

Riding on SABM’S Strategic Objective

Revenue Growth Pressured by slowing Growth and Competition in the Sector:

INTBEW operate majorly in the value segment of the beer market, with broad

base product portfolio in the south-western part of Nigeria. We attribute recent

impressive performance of the company to its concentration on the value

segment which is currently driving the overall growth in the breweries industry.

INTBREW grew its 2014FY turnover by 6.36% a huge deviation from five year

historical average growth of 103.62%. Performance in the last three quarter saw

a significant increase in its product portfolio which initially included Trophy

Larger beer and Betamalt. Newer products such as Castle milk stout, Castle larger

and Redds as well as other products from SAB Miller brands (Grand malt, La

Voltic Water plus other castle brands) have been introduced. Improved route to

market in our view accounted for the turnover growth recorded in recent times,

however, 6.36% 2014FY turnover growth of the beer maker indicates that the

brewer’s operations is having its share of the slowing growth and keen

competition in the sector.

Going forward we expect the company to leverage on its strength in the value

segment of beer market to sustain positive topline growth, even as it ride on the

strategic relationship with its parent company (SABM) to stay competitive.

Improved Cost Management but Higher Finance Cost, Pressured Earnings:

INTBREW recorded significant improvement in its production cost as 2014FY cost

of sale declined 0.99% (NGN9.591 Vs.NGN9.687 in 2013FY), cost to sales ratio

moderated to 51.86% (vs. 2013FY: 55.71%). When compared to 3-year historical

cost to sales ratio of 62.46%, this suggest impressive improvement. Nevertheless,

INTBREW’s earnings for the year was pressured by an unusual jump in finance

charges which went up by over 5000%, hence earnings before tax settled at

NGN3.925 (vs.NGN3.556 in 2013FY) representing a 10.40% growth. However, the

company’s after tax profit dipped 9.53% due to deferred tax liability of

NGN1.36billion.

Market price runs ahead of fair valuation: We adopt a blend of dividend

discount model (DDM) and relative pricing valuation to arrive at a fair value for

INTBREW. The company has proposed a 32kobo dividend for the year, this

implies a 50% payout and a dividend yield of 1.14%. Valuation put 12 month

target price at NGN21.22, which imply a downside potential of 24.37% compared

to market price. Hence the stock is rated a SELL.

International Breweries Plc. NSE: INTBREW l Bloomberg INTBREW NL

45




International breweries Plc. is the third largest brewer in Nigeria (by market

capitalization). Following the rejuvenation of the brewing plant in Ilesha, Osun

State after more than 2 decades of zero production and sustained losses,

INTBREW has regained renewed impetus for revenue growth in the last 2

financial years. Incorporated in December 1971, the company commenced

production in 1978 with an installed capacity of 200,000hl/annum. With

increasing demand, INTBREW increased capacity to 500,000hl/annum. However,

in the late 80s as the company’s performance was fraught by deteriorating

fortune. Consequent on this, INTBREW moved to increase share capital in 2008

given a turnaround prospect for a better future. This move has been remarkable

in the transformation, expansion and renewed profitability in the company in

recent time.

From a unit price of 87kobo in 2007 the company’s share price has risen to as

high as NGN30 in January 2014. This overwhelming price performance is

attributable to number factors. The most notable of these factors include the

combination of the Castel and SABMiller businesses in Nigeria and Angola which

caused a takeover of operational management control of Castel’s Nigerian

business, International Breweries (INTBREW), by SABMiller which took place on

the 1st of January 2012, a deal worth over £6bn. SABMiller, the second largest

brewing company in the world by volume, and largest in Africa, has brewing or

beverage interests in 32 African countries. The Global brewing giant entered the

Nigerian market in 2009 with the purchase of a controlling interest in Pabod

Breweries, based in the southern oil hub.

In terms of capacity, INTBREW currently has a total installed brewing capacity of

0.5mhl. By market capitalization, INTBREW is worth NGN79.25bn. This represent

0.65% of the NSE market capitalization which places the company as the third

largest brewer in Nigeria by market Capitalization.

INTBREW operates from Ilesha Osun state south-west Nigeria where the

brewing plant is located. By ownership structure, Brauhaase Intl Mgt GMBH

hold 46% of th company’s shares, L.A. Pro Shares Limited held another 46%

while the remaining 8% is held by the general public.

46



Brauhaase Intl Mgt GMBH

46%

L.A. Pro Shares Limited

46%

Others8%

SHARE HOLDING STRUCTURE

INTBREW’s product portfolio include Trophy Lager, which is currently a regional

premium with growing popularity among the south-western consumers, Castle

Stout milk, Castle Lager, Grand malt, Beta malt and Voltic water.


Route to the market… halving the price of beer: INTBREW’s Strategy is based

on SABM’s objective to make beer more affordable to the average African

consumer, which the the global beer maker sees as a medium to boost sales

volumes. SABM believe majority of the alcoholic beverages consumed in Africa

are home-brewed and informally produced and its strategy is to lure consumers

into the formal beer market. The company believes that as incomes rises,

consumers will move onto higher priced brands.

Exhibit 36: Product Portfolio


Exhibit 35:


47



‘Affordable beer’: SABM therefore introduced ‘affordable beer’ as part of its

overall product offering to win the market. To achieve this objective, the

company has a plan that proposes negotiating lower tax rates with

governments, on the agreement of buying grains from local farmers. A proposal

that is believed to play an important role in attracting government support. In

sum, to halve beer prices in Africa (where it is believe that beer is quite

expensive). SABM leverages on win-win propositions; attempts in negotiating

lower tax rates with government and subsequently generating revenue stream

for the government through beer productions; cutting costs and expanding

volume growth with a view to slicing prices by working with a strong group of

farmers who are contracted to produce grains in whatever form for brewing.

We note the impressive growth in INTBREW’s Trophy lager, which continues to

enjoy a lot of popularity among the south-western consumers. We think this

growth and popularity can be attributed to the affordability and the quality of

the beer compared to its substitute in the lower income end of the market.

6.4.3 Performance and outlook

Performance outlook: As stated Earlier, INTBREW operates via a regional route

to the market. Major product portfolio concentrates on the lower end/ value

segment of the market, which currently accounts for overall growth in the

sector. In line with recent performance, the company’s 2014Q3 turnover

jumped by 30.40%. This however translate to a 2014FY growth of 6.36%. We

think the company will continue to maximize its recent success in the regional

market while leveraging on the expectation of a stronger volume growth in the

brewing space going forward. Though we see tighter competition in the lower

end segment where the beer maker currently operate, (given the strategic

proposal of Nigeria Breweries), we believe INTBREW will ride on its affiliations

with SABM to stay competitive. Based on the foregoing, we estimate INTBREW’s

five year growth to average 6.5%, though five year historical CAGR is 98.68%.

Earnings: INTBREW posted PAT growth of 9.08% as of 2013FY result. The

company continued its trend of reporting impressive declines in cost to sales

ratio over the last seven quarters (2014Q3:49.25% vs. 2013Q3: 50.87%, 2014Q2:

50.55% vs. 2013Q2: 52.15% etc), which continues to boost operating profits.

Finance charges meant to service term loan up to 2016 however continue to

pressure Earnings. Nevertheless, we see the beer maker growing profit by 6.68

% in the next 5-year based on the sustained positive outcome of the company’s

turnarround strategy.

48



-20%

0%

20%

40%

60%

80%

100%

120%

8

13

18

23

2011 12/2013 2014e 2015f 2016f 2017f

Mill

ion

s Turnover Turnover Growth

-1500%

-1000%

-500%

0%

500%

-2

-1

-

1

2

3

4

2011 12/2013 2014e 2015f 2016f 2017f

Mill

ion

s PAT PAT Growth

INTERNATIONAL BREWERIES PLC 2011 12/2013 2014 2015f 2016f 2017f


Turnover 9.91 17.39 18.49 19.70 20.88 22.13

Gross profit 3.12 7.70 8.90 9.26 10.02 10.18

EBITDA 0.28 0.92 3.62 5.01 5.06 5.55



Profit After Tax - 1.69 2.51 2.11 2.77 3.08 3.37



Total Asset 14.29 23.04 24.37 25.58 11.80 7.99



Total Liability 12.70 13.66 13.10 16.18 7.41 4.72

Net Asset 1.58 9.38 11.27 12.65 14.19 15.88



OPEX Margin 27.40% 24.65% 21.12% 23.43% 22.41% 22.19%

ROAE -82.21% 45.72% 20.39% 23.14% 22.94% 22.42%

ROAA -12.58% 13.43% 8.88% 11.08% 16.48% 34.09%

Current Ratio (x) 0.30 0.84 0.84 0.81 1.63 2.91

Quick Ratio (x) 0.27 0.71 0.78 0.73 1.46 2.50

Cash ratio (x) 0.03 0.13 0.06 0.08 0.18 0.41


Du-Pont Analysis

ROE -106% 27% 19% 21.88% 21.69% 21.23%

Net Margin -17% 14% 11% 14.06% 14.75% 15.24%

Asset Turnover (x) 0.69 0.75 0.76 0.77 1.77 2.77

Leverage (x) 9.02 2.46 2.16 2.02 0.83 0.50

EBITDA Margin 3% 5% 20% 25.44% 24.22% 25.07%

Operating profit (EBIT) margin 7% 20% 27% 23.67% 25.69% 23.91%

Interest burden 94% 108% 78% 87.33% 84.43% 93.73%


Tax burden (2.49) 0.67 0.54 0.68 0.68 0.68


Source: Company’s filings, Meristem research

E

Exhibit 38: FINANCIALS and RATIO (Million’NGN) + FORECAST

Exhibit 37: Historical & Forecast PAT vs. Net Margin

Source: Company’s filings, Meristem research

49



6.5 Other Listed Beer Makers

6.5.1 Champion Breweries plc.

Company Profile: Champion Breweries Limited was changed to Champion

Breweries Plc on the 1st of September, 1992 after going through series of name

changes between 1974 (year of incorporation) and 1992. At inception, the Uyo

based beer producer had a total install capacity of 0.15mhl per annum. Given

demand pressures, the capacity of the company was expanded to 0.5mhl and

then to 1mhl. However, the CAPEX for this new capacity hurt the brewer’s

performance in the years between 1990 and 1991 which caused a shut-down of

the company. However, the advent of democracy in Nigeria brought about state

government and private sector partnership which led to the revamping and

rejuvenation of the plant for brewing 100% locally sourced raw materials in

2001. The company currently operates 0.5mhl per annum.

Product Portfolio: Notable amongst the product portfolio includes Champion

Lager and Champ Malta (to be reintroduced into the market). By market

capitalization, the company is worth NGN9.15 which makes the beer maker the

4th most capitalized brewer in the country.

Key Stakeholder: Consolidated Breweries Plc. held 57% equity stake in

Champion Breweries Plc prior to 23rd of August, 2013. This was however

transferred to Raysun Nigeria Limited, a wholly owned subsidiary of Heineken B

V (“Heineken”), in a bid to provide CHAMPION with its financing and

restructuring requirements. According to the management of CONSBREW,

Champion Breweries has recorded losses over the years, and has relied on

financing from Consolidated Breweries in the form of intercompany debt.

Recapitalizing: In line with the above, the company is currently in the process of

recapitalizing by way of NGN12bn right issue to finance its huge financial

obligation and to optimize its operating capacity. This was issued at a significant

discount of NGN1.85 per share compared to a market price of NGN13.79.

Performance: As seen in its 2013FY result, the company grew its revenue by

25.09% (NGN2.233bn from NGN1.78bn). CHAMPION operates with a very high

Cost to Sales margin of 98.84% compared to industry average 53%. Its bottom

line was also pressured by a 67.86% increase in financial charges as highlighted

above, pegging loss for the year at (NGN1.178bn).

50



Outlook: We think Heineken’s recent interest in Champion breweries Plc. and

the move to recapitalize the company is a great development. This opinion

arose from the level of expertise with which the global brewer is expected to

put into the operations and management of the company as seen in Nigerian

breweries and Consolidated Breweries Plc. According to the management of the

company, CHAMPION has entered into a long term contract with Nigeria

Breweries Plc. in respect of contract production and this is expected to drive

revenue going forward. We see a significant potential for growth in Champion

Breweries post recapitalization and restructuring.

6.5.2 Jos Int. Breweries Plc.

Company Profile: Jos International Breweries Plc. (JOSBREW) started operations

in 1975 following a three-party investment agreement signed among the

Plateau State government, the Danish firm of A/S Cerekem International Limited

and the Industrialization Fund for Development Countries (IFU). JOSBREW

product portfolio includes Rock lager beer and ‘Malt Royale’. In terms of market

capitalization, the beer maker is currently worth NGN1.44bn at NGN2.58 per

share making the company the 5th biggest player in the sector by market

capitalization.

Performance: JOSBREW has not released earnings results since 2009; NSE X-

compliance report listed the company as one of the audited accounts defaulters

having failed to file its 2010 audited financial statement. In 2013 the company

was bailed out of its debt worth NGN700bn owed to Diamond bank by the

Plateau state government in other to revive the operations of the company.

Share price rallied 900% (NGN0.90 to NGN9.00) in 2013 following this

announcement.

Restructuring: JOSBREW plans to approach the Bank of Industry (BOI) for a loan

credit worth of NGN2bn. According to management, this is to revive the

operations of the firm following its debt settlement.

Outlook: Though we strongly believe that recent move by the management of

the company to bring the operations of the Brewing plant back to full capacity is

commendable, the non-availability of information on the performance of the

company however does not give room for the possibility of a clear

understanding of the prospect of the company.

51



6.5.3 Premier Breweries Plc. The Company was incorporated in 1976 and subsequently listed on the floor of

the NSE in 1988. It is located in Onitsha, Anambra State and was incorporated

for the purpose of brewing alcoholic products. The company has in the past,

made various efforts to raise capital base for the purpose of reactivating its

operations to start production, upgrade existing storage facilities and

provide efficient working capital.

6.5.4 Golden Guinea Breweries. Plc

Golden Guinea Breweries Plc was incorporated in September 1962 and

subsequently listed in 1979. Located in Aba, the Company is engaged in the

brewing, bottling and marketing of Golden Guinea lager beer and Eagle Stout, as

well as the production and marketing of Bergedorf premium lager beer and

Bergedorf Malta under a franchise from Holsten Brauerei AG of Hamburg.

According to the Abia State Government, Golden Guinea Brew has a problem

bothering on finance; as a result the company is currently non-operational.

6.6 Non-Quoted Brewer: Consolidated Breweries Plc

Company Profile: Consolidated Breweries Plc (CONSBREW), a subsidiary of

Heineken N.V, the global brewing giant (became a majority shareholder in

2005). CONSBREW is the third largest brewery in Nigeria the beer maker

produces quality brands such as “33” Export Lager Beer, Turbo King Dark Ale,

Williams dark ale, Hi-Malt Non Alcoholic Malt Drink and Maltex (acquired a

majority shareholding in DIL/Maltex Nigeria Plc in 2009) Non Alcoholic Malt

Drink. These brands have wide distribution networks, and have great consumer

following across Nigeria.


Exhibit 37: Brand Portfolio

52



Brewing plants: CONSBREW currently operates four different brewing plants.

These include H/office located at Iddo House, Iddo, Lagos; other breweries are

located in Ijebu-Ode in Ogun State, Awo-Omamma in Imo State and Makurdi in

Benue State. We note that the current expansion to Makurdi and Uyo result

from the strategic acquisition of Sona Breweries by the Heineken Global group

in 2010. An acquisition that saw the takeover of the five brewing plants of Sona

breweries in Ota, Kaduna, Onitsha (Nigerian Breweries) and the aforementioned

two for CONSBREW.

Strategic focus: CONSBREW is HEINEKEN’S strategic route into the savings/value

segment of the Nigerian brewing and malting market. This was on the back of

the fact that the global beer maker needs to register its presence among 61% of

the market in the lower end segment which is curently driving growth, who live

on less than USD1 per day and will require to work 2 hours a day to buy a bottle

of beer. The affordability of the product portfolio of CONSBREW is therefore a

key strategic thrust of the operations of the beer maker.

Ownerhip structure and product portfolio: Heineken Group holds 53.5% of the

shares of the company, 10.6% is held by Odutola Holdings, while the remaining

35.9% is held by other shareholders. The brand portfolio of the craftbrewer

include ‘33’ export which takes c.50% of the volume share of the company,

Turbo king, Williams, Hi-malt and Maltex. The overall feature of the portfolio is

their ‘pocket friendly’ price and premium quality.

Performance: The company recorded a five year revenue growth of c.350%

between 2005 and 2012. Turnover expanded 1.15% as at 2013FY while PBT and

PAT declined 58.60% and 55.33% respectively. CONSBREW now functions in 4

entities Vs. 1 in 2009 (DIL/MALTEX,Champion,bbl and consolidated), operates 5

plants, 14 KSU’s and maintains a man power base of 1400 workers.

Outlook: Heineken has filed a proposal to merge the operations of CONSBREW

with that of Nigeria Breweries, with the global company retaining majority

interest in both companies. Both entities are expected to exist as Nigerian

Breweries post the merger. According Heineken, the consolidation is a strategic

initiative to position the global beer maker for full optimization of the

opportunities in the Nigerian brewing space

53



Heineken54%

Odutola holdings

11%

Others36%

•CONSBREW

29 Depot

•700 Independent Distributors

5000 Bulk Breakers

•Bars

•Retail outlets

Consumer

.

6.6 Concluding Highlights We think the long-term prospects for growth remain compelling in the

Nigerian beer market.

We are bullish on Nigerian Breweries as we expect the proposed merger

between Nigerian Breweries and Consolidated breweries to reinforce the long-

term potential for huge returns on investment in the company.

Though we are modest on the 12 month performance outlook for GUINNESS,

we believe the beer maker will continue to leverage on innovation to shove up

its slowing top-line performance.

SABM is expected to further expand its presence in Nigeria with an attempt into

the premium segment (Castel may be introduced to raise competition), while

intensifying its competitive presence in the value segment. Consequent on this,

growth outlook for INTBREW remains attractive.

Heineken will evetually consolidate its entire holding into NB given recent

proposed merger. Hence, Champion breweries may be integrated in no distant

time.

Source: Heineken.

Exhibit 38: Shareholding Structure Route to the Market

54



Champion Breweries offers the highest potential for returns amongst the small

cap brewers.

We anticipate the possibility of acquisitions of other inoperative listed beer

makers though there are no grounds for this at the moment.

Cassava beer and other spent beer making inputs offer other opportunities for

investors in the beer production value chain.

55



APPENDIX 1: NIGERIAN BREWERIES FINANCIALS IN THOUSANDS NGN (HISTORICAL+FORECAST)

Balance Sheet

2011 2012 2013 2014 2015 2016

BALANCE SHEET

Non-current Assets

Fixed Assets 98,428,278 142,348,420 153,366,133 154,908,029 165,747,971 176,937,887

Investments (at cost) 150000 150000 150,000 108,196 115,767 123,583

Intangible Asset 54367019 53987573 53563357 54,036,994 57,818,321 60,109,561

Long-term loans receivable

191446 148700 158,884 667,717 714,442 762,675

deferred charges and trademarks

0 132309 235,790 0 0 0

Total Fixed Asset 153,136,743 196,767,002 207,474,164 209,720,936 224,396,501 237,933,705

Stocks and work-in-progress

27,533,033 24,652,723 20,643,153 27,041,436 28,933,705 30,887,067

Debtors 12,692,298 19,929,893 14,212,062 18,454,134 11,082,706 13,443,087

Due from related companies

0 902,910 764,588 3,238,495 3,465,114 3,699,050

Other Assets 0 0 0 0 0 0

Cash at Bank and in hand 21,876,465 9,514,205 9528848 10606072.34 20011035.56 21362013.14

Deposits for imports 1,133,415 1,866,896 136,818 813,541 870,469 929,236

Total Current Asset 63,235,211 56,866,627 45,285,469 60,153,678 64,363,030 70,320,453

TOTAL ASSET 216,371,954 253,633,629 252,759,633 269,874,614 288,759,532 308,254,158

LIABILITIES

Current Liabilities

Trade creditors 0 61,692,692 69,832,649 47,889,259 41,469,964 11,808,970

Other Creditors 47,554,919 0 0 12,685,050 4,832,471 18,539,140

Due to related companies

0 0 0 0 0 0

Taxation -18347122 -17581652 -19159968 -22274775.98 -24099870.53 -26344170.97

Dividend 9453205 22688113.3 34032169.94 39096461.88 43206785.25 48256662.38 Short-term Liabilities 72,207,575 86,834,468 100,295,715 94,875,373 83,003,771 69,527,213

Creditors: amount falling due after 1-yr

0 0 0 0 0 0

Long-term loan 38,000,000 45,000,000 9,000,000 18,742,844 25,405,218 31,449,278

Deferred Tax 21,231,638 22,384,550 21,830,000 16,192,477 17,325,572 18,495,249

Staff Pension / Gratuity 6,866,570 5,966,719 9,274,733 5,397,492 5,775,191 6,165,083

Deferred Income 0 0 0 11912614.23 22976072.65 35374365.69 Total non-current Liabilities

66,098,208 73,351,269 40,104,733 52,245,427 71,482,054 91,483,977

Total Liabilities 138,305,783 160,185,737 140,400,448 147,120,800 154,485,824 161,011,190

Net Assets 78,066,171 93,447,892 112,359,185 122,753,814 134,241,261 147,071,325

56



Income Statement

2011 2012 2013 2014F 2015F 2016F

INCOME STATEMENT

Turnover 230,123,215 252,674,213 268,613,518 287,416,464 308,972,699 331,373,220

Cost of sales -120,361,199 -127,222,069 -132,136,476 -141,552,609 -151,396,623 -161,544,445

Gross Profit 109,762,016 125,452,144 136,477,042 145,863,856 157,576,077 169,828,775

Total OPEX -53,459,431 -63,520,376 -69,381,076 -67,516,152 -72,386,239 -75,571,589

Operating Profit (EBIT) 56,647,710 63,932,031 69,171,377 78,922,537 85,807,782 94,919,932

Interest Income

1,329,159

559,842

551,250

603,575

710,637

795,296

Interest Expense -1,604,177 -8,867,507 -7,482,310 -7,760,245 -7,724,317.477

-8,284,330.494

Net Interest Earnings -275,018 -8,307,665 -6,931,060 -7,156,670 -7,013,680.269 -7,489,034.767

Profit before tax

56,372,692.00

55,624,366.00

62,240,317.00

71,765,867.07

78,794,102.22

87,430,897.45

Taxation -18,347,122 -17,581,652 -19,159,968 -22,274,776 -24,099,871 -26,344,171

Profit after taxation

38,025,570.00

38,042,714.00

43,080,349.00

49,491,091.09

54,694,231.69

61,086,726.47

57



APPENDIX 2: GUINNESS NIG. PLC FINANCIALS IN THOUSANDS NGN (HISTORICAL+FORECAST)

Balance Sheet 2011 2012 2013 2014e 2015f 2016f

BALANCE SHEET

Non-current Assets Fixed Assets 46,098,557 76,293,851 88,112,852 83,714,714 86,238,731 86,034,856

Investments (at cost) 774000 0 0 121,331 124,645 128,933

Intangible Asset 1031280 679792 578771 1,112,226 1,142,603 1,181,915

Long-term loans receivable 675476 0 31,611 648,237 665,942 688,854

deferred charges and trademarks


Stocks and work-in-progress 17,433,924 13,193,762 12,400,102 24,175,130 24,835,391 25,689,876

Debtors 18,133,997 10,812,267 16,649,278 12,307,644 12,643,785 13,078,806

Due from related companies 0 0 0 0 0 0

Other Assets 0 0 0 6701929.869 6947094.702 6641628.182

Cash at Bank and in hand 8,080,590 4,772,154 3189239 16676499.95 17131961.14 17721402.38

Deposits for imports


TOTAL ASSET 92,227,824 106,009,667 121,060,621 115,660,008 118,818,863 122,906,938

LIABILITIES

Current Liabilities Creditors: Amt falling due within 1-yr

0 0 0 0 0 0

Bank Overdraft 0 0 0 3,088,442 3,172,792 3,281,955

Short-term Loans 0 0 0 -11,988,689 -11,887,120 -11,812,895

Trade creditors 26,342,948 31,808,962 34,920,097 32,465,764 33,352,455 34,499,977

Other Creditors 0 8,201,394 12,304,644 5,092,873 13,457,218 18,254,090

Due to related companies 0 0 0 0 0 0

Taxation -8249032 -6168538 -5145149 -

6660536.019 -

7375742.713 -

7545974.691 Dividend 12168135.53 11799404.15 10541217.32 12030593.18 13322435.28 13629916.79 Short-term Liabilities 36,588,640 45,199,537 51,275,097 35,574,325 46,388,353 52,801,464


0 0 0 0 0 0

Long-term loan 0 8,513,058 8,796,183 6,939,600 5,940,943 4,916,278

Deferred Tax 10,282,960 10,902,749 11,955,673 16,453,977 7,213,476 5,064,991

Staff Pension / Gratuity 3,739,799 2,782,809 2,994,557 5,218,870 5,361,405 3,687,208

Deferred Income 0 0 0 189236.2287 194404.5649 201093.2368 Total non-current Liabilities


Net Assets 40,283,492 38,611,514 46,039,111 48,162,157 50,513,175 52,918,454

58



Income Statement

2011 2012 2013 2014e 2015f 2016f

INCOME STATEMENT

Turnover 123,663,125 116,461,882 122,463,538 114,503,408 118,224,769 124,136,007

Cost of sales -68,619,520 -61,278,681 -66,385,104 -60,686,806 -62,068,004 -65,171,404

Gross Profit 55,043,605 55,183,201 56,078,434 53,816,602 56,156,765 58,964,603

Total OPEX -29,315,098 -34,035,655 -36,279,600 -33,517,692 -34,821,828 -36,190,317

Operating Profit (EBIT) 26,538,501 21,895,799 20,614,339 21,100,434 22,162,510 23,394,967

Interest Income

203,315

580,822

201,185

1,832,055

2,955,619

2,234,448

Interest Expense -564,850 -2,093,463 -3,806,649 -2,118,313 -2,068,933.454 -2,048,244.119

Net Interest Earnings -361,535 -1,512,641 -3,605,464 -286,259 886,685.766 186,204.011

Profit on ordinary activities b4 tax

26,176,966.00

20,383,158.00

17,008,875.00

20,814,175.06

23,049,195.98

23,581,170.91

Taxation -8,249,032 -6,168,538 -5,145,149 -6,660,536 -7,375,743 -7,545,975

Profit after taxation (PAT)

17,927,934.00

14,214,620.00

11,863,726.00

14,153,639.04

15,673,453.27

16,035,196.22

59



APPENDIX 3: INTERNATIONAL BREWERIES PLC. FINANCIALS IN THOUSANDS NGN (HISTORICAL+FORECAST)

Balance Sheet

BALANCE SHEET

Non-current Assets

Fixed Assets 7,323,499 9,662,962 15,496,354 18,677,771 19,696,011 9,200,374

Investments (at cost) 1000 1000 1,000 1,000 1,049 1,049

Intangible Asset 21060 33020 24765 22,444 30,695 25,579

Long-term loans receivable

Deferred charges and trademarks


Stocks and work-in-progress 1,741,257 1,636,459 2,439,885 2,236,649 2,174,235 2,148,656

Debtors 489,002 1,098,644 3,142,040 2,945,043 3,197,404 3,064,392

Due from related companies 0 0 0 0 0 0

Other Assets 0 0 0 0 0 0

Cash at Bank and in hand 209,283 318,349 1042393 393379 562743.1701 639480.8752

Deposits for imports


TOTAL ASSET 12,516,033 14,288,312 23,036,762 24,370,540 25,579,235 11,795,351

LIABILITIES

Current Liabilities Creditors: Amt falling due within 1-yr

Bank Overdraft 658,320 136,149 2,421,689 771,856 1,087,117 501,302

Short-term Loans 0 0 0 0 0 0

Trade creditors 1,672,593 9,971,271 5,327,074 5,297,015 5,627,432 2,712,931

Other Creditors 0 3,178 17,820 79,335 127,896 117,954

Due to related companies 0 0 0 0 0 0

Taxation 0 -2363229 -1228204 -1819998 -1365800.184 -1448993.784

Dividend 0 0 815631.6075 1044008.458 1451162.695 1539555.895

Short-term Liabilities 2,342,470 10,153,591 7,854,517 6,604,447 7,354,030 3,579,889


Long-term loan 7,338,030 39,642 3,789,474 3,854,913 3,836,885 1,533,396

Deferred Tax 0 1,167,817 1,749,928 2,322,550 2,015,644 929,474

Staff Pension / Gratuity 257,671 220,614 257,852 318,707 386,246 178,110

Deferred Income 0 0 0 0 2156329.511 994348.1056

Total non-current Liabilities


Net Assets 2,516,680 1,583,323 9,380,173 11,269,923 12,721,086 14,260,642

60



Income Statement

2011 12/2013 2014 2015f 2016f 2017f

INCOME STATEMENT

Turnover 4,794,000 9,908,167 17,388,632 18,493,907

19,696,011

20,877,772

Cost of sales -3,030,000 -6,785,005 -9,687,402 -9,591,273 -10,241,926 -10,856,441

Gross Profit 1,764,000 3,123,162 7,701,230 8,902,634 9,454,085 10,021,330

Total OPEX -1,494,000 -2,715,302 -4,287,154 -3,905,378 -4,614,775 -4,678,992

Operating Profit (EBIT) 278,928 719,903 3,444,197 5,011,222 4,859,006 5,363,216

Interest Income -

23,669

308,974

41,620

98,480

104,389

Interest Expense -79,431 -65,685 -18,477 -1,009,527 -689,360.383 -939,499.723

Net Interest Earnings -79,431 -42,016 290,497 -967,907 -590,880.329 -835,110.864

Profit on ordinary activities b4 tax

199,497.00

677,887.00

3,734,694.00

3,925,500.00

4,268,125.57

4,528,105.57

Taxation 0 -2,363,229 -1,228,204 -1,819,998 -1,365,800 -1,448,994

Profit after taxation (PAT) 199,497.00

(1,685,342.00)

2,506,490.00

2,105,502.00

2,902,325.39

3,079,111.79

61



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Investment Ratings

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We estimate stock’s fair value by computing a weighted average of projected prices derived from discounted cash flow and relative

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HOLD: Fair value of the stock ranges between -10 percent and 20 percent from the current market price.

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62



Movements in Price Target

Company disclosures

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m. Meristem has other financial or other material interest in the company.

Conflict of Interest

Ticker Last Review Date

Price (N)

Previous Target Price(N)

New Target Price (N)

Previous Recommendation

New Recommendation

NB 22/07/2014 177.09 156.11 169.12 “HOLD” “HOLD” GUINNESS 26/02/2014 200 199.2 199.2 “HOLD” “HOLD” INTBREW 23/07/2014 28.05 15.92 21.22 “SELL” “SELL”

Company Disclosure

Nigerian Breweries Plc.

Guinness Nigeria Plc. a

International Breweries Plc.

63



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64



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65



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66



Glossary

Abbreviation Definition Abbreviation Definition

BRICS Brazil, Russia, India, China and South Africa IFC International Finance corporation

BVPS Book Value per Share IFRS International Financial Reporting Standard

C. Close to IMF International Monetary Fund

CAPEX Capital Expenditure IOC International Oil Company

CAGR Compounded Annual Growth Rate IPP Independent Power Producer

CAR Capital Adequacy Ratio LTD Loan to Deposit

CIT Company and other Income Tax M1 Narrow Money

CSD Carbonated Soft Drink M2 Broad Money

CKD Completely Knocked Down M&A Mergers and Acquisition

CNG Compressed Natural Gas MBPD Million barrels per day

COE Cost of Equity MCAP Market Capitalization

COT Commission on Turnover MDRI Market Development and Restructuring Initiative

CPI Consumer Price Index MENAP Middle East, North Africa, Afghanistan and Pakistan

CPO Crude Palm Oil MHL Million Hecto Liters

CRR Cash Reserve Ratio MIC Middle Income Country

DCF Discounted Cash Flow MIRS Minimum Interest Rate on Savings

DDM Dividend Discount Model MMT Million Metric Tonne

DPS Dividend Per Share MMTPA Million Metric Tonne Per Annum

DISCOS Distribution Companies MOU Memorandum of Understanding

D/Y Dividend Yield MPC Monetary Policy Committee

EBIT Earnings before interest and tax MPR Monetary Policy Rate

ECA Excess Crude Account MRQ Most Recent Quarter

EEG ECOWAS Expansion Grant Scheme MSCI Morgan Stanley Capital International

EIA Energy Information Administration MTEF Medium Term Expenditure Framework

EIU Economist Intelligence Unit MYTO Multi-Year Tariff Order

ETLS ECOWAS Trade Liberalization Scheme NAICOM National Insurance Commission

EM-LCI Emerging Markets local currency index NBS Nigeria Bureau of Statistics

EPS Earnings per Share NDA Net Domestic Asset

EU European Union NFA Net Foreign Assets

FDI Foreign Direct Investment NGL Natural Gas Liquids

FEC Federal Executive Council NGN Naira

FED Federal Reserve NGO Non-government organization

FFB Fresh Fruit Bunches NHA Nigeria Hotel Association

FGN Federal Government of Nigeria NIBOR Nigeria Interbank Offer Rate

FIRS Federal Inland Revenue Service NIPP National Integrated Power Project

FMCG Fast Moving Consumer Goods NNPC Nigerian National Petroleum Corporation

FMF Federal Ministry of Finance NPC National Population Commission

FPI Foreign Portfolio Investment NPE Net Premium Earned

FTAN Federation of Tourism Associations NPL Non-Performing Loan

FY Full Year NSE Nigerian Stock Exchange

GBI-EM Global Bond Index Emerging Market NSEBNK Nigerian Stock Exchange Bank

GCI Global Competitiveness Index NTDC Nigerian Tourism Development Corporation

GDP Gross Domestic Product OECD Organization for Economic Cooperation and Development

GDR Global Depository Receipts OPEC Organization of Petroleum Exporting Countries

GE General Electric OPEX Operating Expense

GENCOS Generation Companies OTC Over the Counter

GMP good manufacturing practice PAT Profit After Tax

GPE Gross Premium Earned P/B Price to Book Value

GPW gross premium written P/E Price to Earnings Ratio

H1 First Half PBB Personal and Business Banking

H2 Second Half PBT Profit before tax

HL Hectoliters PIB Petroleum Industry Bill

SABM South African Breweries and Millers PLC/ SABMiller

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Abbreviation Definition Abbreviation Definition

PMI Purchasing Managers’ Indices SKD Semi- Knocked Down

POME Palm Oil Mill Effluent SME Small and Medium Scale Enterprise

PPP Purchasing Power Parity SON Standard Organization of Nigeria

PPT Petroleum Profit Tax SRW Soft Red Winter

Q1 First Quarter SSA Sub-Saharan Africa

Q2 Second Quarter TCN Transmission Company of Nigeria

Q3 Third Quarter TELECOS Telecommunication Companies

Q4 Fourth Quarter TP Target Price

QE Quantitative Easing UNICEF United Nations children Emergency Fund

Q-o-Q Quarter on Quarter UK United Kingdom

RER Real Exchange Rate US United States of America

R&D Research and Development USAID United states Agency for International Development

RDAS Retail Dutch Auction System USD United States Dollars

RIM Residual Income Model VAT Value Added Tax

RIR Real Positive Interest Rate WAMA West Africa Monetary Agency

ROAA Return on Average ASSET WAMZ West Africa Monetary Zone

ROAE Return on Average Equity WDAS Wholesale Dutch Auction system

RTDs Ready-to-Drinks WHO World Health Organisation

ROE Return on Equity YTD Year to Date

SAP Structural Adjusted Program Y-o-Y Year on Year

SHF Shareholders Fund

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