Growth is one of the criteria used in measuring the strengths and successes recorded by company chief executives, especially companies like Nigerian Breweries, which plays many influential roles in the Nigerian economy. As a CEO of a company that is known for contributing to job creation and wealth generation through a large network of distributorships and shareholders’ value creation and enhancement, you are surely going to be followed in every move that you make that potentially has an impact on your company. So, when the horn is sounded that you are about to do something that would lead to further growth, all eyes are going to be looking at the numbers to get a sense of what you are saying about what the future holds for your proposed strategy.
Indeed, because growth is well known to be strategically engineered and driven, it is often expected to manifest in such areas as a company’s physical size, its balance sheet, portfolio of products, profitability, as well as how much of its market segment it controls. If we stayed on the theme of growth, however you may choose to analyse it, Nigerian Breweries is a behemoth in the Nigerian economy. As one of the biggest companies in the country, it does not shy away from admitting its big size and continuously working at it to remain on that trajectory. Its chief executive officer, Nico Vervelde, who has been at the helm since 2010, knows this and has strategically worked in the last four years to ensure that the company continues to lead in the brewing industry.
Vervelde has done a number of things since coming on board, all of which have helped to make things happen and for growth to be sustained, and leadership maintained. But very clearly, product expansion is something he has successfully pursued as a growth driver in the last few years. The interesting thing, though, is that expanding the portfolio of products has been achieved largely through business acquisitions. As a chief executive, Vervelde appears to be establishing himself as a man with dexterity for doing Mergers and Acquisitions (M&A). And right now he has one on his hands.
In this new move, Vervelde has his eyes set on increasing the share of Nigerian Breweries Plc to above 70 percent in the Nigerian beer and beverage market. This would involve merging the operations of Nigerian Breweries Plc and Consolidated Breweries Plc to create a bigger business combination for enhanced benefits for investors/shareholders, the company and consumers. The merger is coming in the wake of NB Plc acquisition of Sona Systems Associates Business Management Limited and Life Breweries Company Limited from Heineken International B.V.
There are a number of benefits that would emerge from the combination, but as an astute manager, Vervelde, as well as the other directors of both Nigerian Breweries and Consolidated Breweries, is looking at the huge synergy dividends that would result after the companies are merged. For instance, it is the new platform that would be created once the companies are merged that would allow significant synergies to be obtained for the benefit of shareholders, employees, customers, distributors, suppliers and the economy as a whole.
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But there are other significant wider benefits as expressed in the rationale put out for the merger. Vervelde and everybody involved in this process of growth and leadership consolidation for Nigeria Breweries Plc in the Nigerian brewing industry expect to see operational efficiencies resulting from the combined businesses. This is expected to manifest in areas such as enabling a platform for improved efficiency and economies of scale resulting as operations become streamlined. The directors also see an enlarged company that would become more efficient in the manufacture of products of both entities through the combined operational capacity of the two companies.
Also, Vervelde and the other directors expect that products will be sold and distributed across the entire combined sales and distribution network of the two companies. Efficiency will result in cost-saving from increased efficiency in procurement, supply chain management and support functions, which should ultimately impact positively on shareholder value.
As far as shareholder value creation is concerned, this is expected to be seen in terms of Consolidated Breweries’ shareholders becoming shareholders of a larger and highly profitable entity; and the synergies created as a result of the merger will create additional value for shareholders.
Continuing with benefits for shareholders, Vervelde and his fellow directors in both companies believe that this scheme of merger provides Consolidated Breweries’ shareholders with a more liquid stock. And because Nigerian Breweries is listed on the Nigerian Stock Exchange, shareholders of Consolidated Breweries, once the merger is consummated, will enjoy the benefit of holding shares in a liquid company listed on the NSE.
And with regard to liquidity, the scheme of merger provides for the issuance of 396,857,294 ordinary shares of 50 kobo each by Nigerian Breweries in exchange for the existing 496,071,617 ordinary shares of Consolidated Breweries at a ratio of four new shares for every five held.
“This means a high degree of liquidity for Consolidated Breweries’ shareholders. Consolidated Breweries, which is not listed on the Nigerian Stock Exchange, will in effect acquire equities that are tradable on the stock exchange. In the post-merger environment, Nigerian Breweries will increase its volume of shares to approximately 7,960 million, which will increase market capitalisation,” Vervelde and other directors explained.
Vervelde and the other directors are also selling to shareholders, who are expected to vote for this to go through, that the proposed merger will ensure that Consolidated Breweries’ quality brands are marketed and distributed nationwide, hence creating more value for all stakeholders. They also argue that the economies of scale that will result from the merger will also accrue to shareholders.
“The proposed merger will provide a platform where the enlarged company can benefit from economies of scale in procurement, distribution and manufacturing of all the products on offer. We expect the benefits accruing from these to accrue to all stakeholders,” they argued.
In terms of bare knuckle numbers with regard to profitability performances by both companies, Vervelde and the other directors are promoting a merger that would see two profitable companies unite. For instance, NB Plc has grown turnover consistently from N164.21 billion in 2009 to a peak of N268.61 billion in 2013. It is expected to maintain the continuing growth trend in sales revenue in 2014. Profit performance has largely followed the stable growth in revenue. Apart from a slowdown in 2012, the company has improved profit every year in the past five years from N27.9 billion in 2009 to a height of N43.08 billion at the end of 2013. It maintains a leading net profit margin in the breweries sector at 16 percent in 2013 and shows a long record of regular dividend payment to shareholders.
On the other hand, Consolidated Breweries has also achieved a continuing growth in sales revenue in the past five years. It has improved sales revenue every year from N20.21 billion in 2009 to N33.91 billion at the end of 2013. It has also maintained profitable operations since 2009, with after tax profit increasing from N2.79 billion in 2009 to a peak of N3.22 billion in 2012. Despite a drop to N1.12 billion in 2013 due to rapid increases in finance cost and cost of sales, the company has maintained an unbroken record of dividend payment to shareholders.
Phillip Isakpa
