Lagos Nigeria, 27 May 2019 — Global Credit Ratings has affirmed the national scale long-term and short-term issuer ratings of AA(NG) and A1+(NG) respectively assigned to Nigerian Breweries Plc, with the outlook accorded as Stable. The ratings are valid until April 2020.
Global Credit Ratings (“GCR”) has accorded the above credit ratings to Nigerian Breweries Plc (“NB” or “the Group”) based on the following key criteria:
Incorporated in 1946, NB is Nigeria’s largest brewing group, controlling over 60% of the country’s beer market. The Group has a well-diversified product offerings, with 20 brands, divided into 13 alcoholic brands and 7 alcohol-free drinks. NB has a large distribution network, experienced management team, extensive customer base, and a wide geographical footprint. The Group has been a major driver of consolidation in the industry. This, combined with its continuous product innovation across various market segments has helped to maintain the Group’s market share and dominance.
The Group enjoys strong parental support from its principal shareholder, Heineken N.V. Global, a major global brewing group, with operations in more than 70 countries. With Nigeria being the largest market for Heineken across the Middle East and Africa region, the parent company is committed to providing operational and strategic support to NB.
Revenue came under pressure in FY18, declining by 5.8% due to heightened competition, and consumers trading down to value brands. The new excise duty rate also resulted in pricing pressure and adversely impacted the results. While revenue pressure is expected to persist in FY19, the Group’s competitive strengths should continue to support market share and earnings.
Aside from pricing constraints, margin pressure arose from the higher raw materials prices, and operating costs. Nevertheless, NB still reports strong profitability and earnings margins well above the industry average. The Group expects margins to stabilise as its efficiency initiatives are implemented.
Cash flow from operations declined significantly in FY18 (albeit still positive) largely due to the settlement of trade creditors that had built up over the previous three years. Accordingly, additional debt was necessary to fund capex costs and support working capital. Nevertheless, the Group continues to reflect a favourable cash conversion cycle that facilitates robust liquidity, with little expansionary capex requirements.
Gross debt spiked to N42.6bn at FY18, largely for working capital requirements. Thus, gross gearing rose to 61.1% (FY17: 10.6%), and gross debt to EBITDA rose to 62.9% (FY17: 9.4%) at FY18. On a net basis, net gearing and net debt to EBITDA spiked to 39.9% and 41.0% respectively, from ungeared positions at FY17. This notwithstanding, debt has been largely short tenured, and the relatively short cash generation cycle is expected to continue to support group liquidity and debt serviceability.
Liquidity is underpinned by NB’s substantial cash holdings of N14.8bn at FY18. Moreover, access to capital is strong with a wide range of funding facilities availed. This comprises revolving five-year facilities from five Nigerian banks, with an aggregate limit of N66bn, as well as a N100bn Commercial Paper Issuance Programme established in FY19.
Given the strong rating accorded, a rating upgrade is only likely over the medium term and is dependent on the attainment of sustained growth in earnings and improved business efficiency, combined with the Group’s ability to optimise its competitive strengths. Conversely, a further deterioration in the general operating conditions, combined with a heightened competitive pressure could further moderate the group’s financial performance and liquidity profile, resulting in negative rating action.
NATIONAL SCALE RATINGS HISTORY
Initial/last rating (April 2018)
Rating outlook: Stable
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APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Criteria for Rating Corporate Entities, updated February 2018
Nigerian Breweries Plc rating report, 2018
Glossary of Terms/Ratios, February 2018
RATING LIMITATIONS AND DISCLAIMERS
SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the ratings are valid till April 2020.
Nigerian Breweries Plc participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit rating/s has been disclosed to Nigerian Breweries Plc.
The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.
The information received from Nigerian Breweries Plc and other reliable third parties to accord the credit ratings included:
– 2018 audited annual financial statement, and four years audited annual financial statements;
– Internal and/or external management reports;
– A completed rating questionnaire containing additional information on Nigeria Breweries and its subsidiaries;
– Industry comparative data and regulatory framework and a breakdown of facilities available and related counterparties; and
– Information specific to the rated entity and/or industry was also received.