Nigerian Breweries (NB) has been struggling with declining revenues, high costs and unsustainable debt burdens for the past two years.
Investors who continue to hold onto Heineken see its share price falling 12% in 2023 and another 12% in 2024, a figure that reflects a market with little room for other consumer stocks.
In 2024, the company will issue a license fee of N548.7 billion, the largest in its history, which seems to have given the company a lifeline.
The company’s results for the fourth quarter of 2024. Show that it can operate. Revenue grew 89% and, more importantly, net expenses fell 75% as new capital was invested to reduce financial risks.
In a February 14 conference call, management said that “the proceeds from the rights issue will be used to mitigate future financial risks.”
This was the first time in two years that National Bank has posted a quarterly profit. This helped boost full-year revenue to N1.1 billion, up 81% from the same period last year.
Much of this growth was driven not by a significant expansion in demand, but by a significant increase in prices;
The full-year 2024 results, as reported by Heineken N.V.
• In the early 1970s, Nigeria’s net income (BEIA) grew at a modest pace, largely due to a large increase in prices to combat inflation and a devaluation of the currency.
• Despite this pressure, overall sales have grown by a modest 15%, with beer sales growing by around 15% before the market close.
• The company has weathered the effects of inflation and significant cost cuts due to:
• Overall cost-saving and cost-management initiatives,
• Two breweries have closed,
• Selling its stake in Champion Breweries.
But with the economy in a recession and inflation running at 33% and food prices at over 40%, disposable income is shrinking and discretionary spending is under severe pressure, raising concerns about the long-term sustainability of beer demand.
While some middle-class consumers may be willing to pay a higher price for a bottle of Heineken or Desperado, the large market that relies on beer for survival has no choice but to close its doors.
The 2024 restructuring, including the rights issue, improved the company’s financial position.
Before the restructuring, for every Naira of equity (capital) the company had, it had 5.40 Naira of debt; today, this figure has been reduced to just 45 kobo for every naira of equity, thereby improving financial sustainability.
Similarly, its equity ratio (the ratio of debt used to finance assets) has fallen significantly, meaning the company is now relying on its own funds rather than borrowing to finance its operations.
But that does not mean the problems are over. Operating margin fell to 6.45% despite revenue growth and cost-cutting measures, including the closure of two breweries and the sale of its stake in Champion Brewery.
Meanwhile, NB’s interest coverage ratio has fallen from 1.22 times in 2023 to 0.71 times in 2024, a worrying sign that its earnings are struggling to meet operating expenses.
Worse, net operating expenses have increased by 34%, driven by lower interest and borrowing costs, causing its net loss to widen further from 145.2 billion in 2023 to 182.9 billion in 2024.
There is no doubt that the company has taken an important first step by using the proceeds from the rights issue to reduce financial risk, strengthen its balance sheet, and return to profitability in the latest quarter.
However, the real test will come in the coming quarters. It is not enough to rely on falling exchange rates and rising prices to maintain profitability; The brewery has closed two plants, but further operational measures are needed.
The biggest challenge is the economic environment. If the naira were to depreciate significantly again, its volatility could erode these hard-earned gains.
A hedge or hedge against future financial risks could reduce the risk of default, but its use is key.
NB shares rose modestly from 13% in early 2025, but as it nears February 14, 2024, the year-to-date gain has fallen to 4.4%.
Investors are cautious. The company’s price-to-earnings ratio is 0.35 times, suggesting that the market is still pricing in any gains made in a large amount of money.
Meanwhile, a price-to-book ratio of 0.82 times earnings means investors are not convinced that the company will fully recover.
What about dividends?
For investors who are making money, NB is disappointing. The return of dividend payments may boost investor sentiment, but the reality is more complex.
• Unallocated corporate losses have now increased to N169.8 billion, effectively blocking any.
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