AB InBev’s International Breweries has been a value destructor

Messrs. David Tomlinson, Carlos Coutino, and Cherian Kurien have their work cut out for them.

Recently appointed as Finance Director, Managing Director, and Non-Executive Director, respectively, they face the daunting task of reversing the fortunes of one of the most notable value destructors on the NGX.

They are tasked with helping Nigeria’s second-largest brewer, International Breweries, survive yet another phase of value destruction that could determine whether the company continues to operate in Nigeria or exits, as others have done when faced with a less arduous task.

The first major task involves taking a page from their playbook: raising capital to plug losses.

Following years of losses, International Breweries Plc has once again obtained shareholder approval to raise equity via a rights issue. The company made this announcement through a public notice on the exchange.

The company did not specify the amount of equity to be raised but gave the directors the power to raise as much capital as necessary.

The company’s shareholders also approved a reduction in the nominal share price of the company from 50 kobo to 20 kobo per share, representing a 60% decrease. This will increase the total number of shares outstanding to 26.86 billion.

The capital restructuring is not unexpected, considering the magnitude of losses incurred by the company over the last six years.

International Brewery has incurred a staggering accumulated loss (without taxes) of N206 billion since 2017, significantly impacting its shareholders’ funds. The loss of N87.6 billion recorded in 2023 completely wiped out what is left of the company’s retained earnings, which now stand at a negative N117.7 billion.

At this rate, the company is expected to prolong its dividend drought, which has persisted for more than five years.

The company also carries a staggering external debt of N376 billion more than double its equity. Its history with debt is also well documented.

This erosion of equity is reminiscent of the crisis in 2019 when the company’s shareholder funds dwindled to a mere N7.4 billion, prompting it to raise N165 billion through the issuance of 18.3 billion ordinary shares priced at N9.00 each to its existing shareholders.

Despite these capital infusion efforts in 2020 and 2021, which resulted in losses before tax of N24.8 billion and N19.8 billion respectively, and further losses in 2022 and 2023 totaling N159.1 billion, the brewery is once again on a quest for financial revitalization through a rights issue.

This move necessitates a decision from shareholders: to participate in the rights issue and support the company’s recovery efforts or to pass, potentially altering the company’s ownership landscape. The question then arises: who stands to gain from this situation?

International Breweries is majority-owned by the world’s largest brewer, AB InBev, which holds a 78.4% equity stake. Brauhaase International Management, a German beer distributor also related to AB InBev, holds 8.85%. Combined, both companies own 87.25%. Anambra State and River State are minority shareholders.

The previous capital infusion through a rights issue was promoted by the company as a demonstration of its majority shareholder’s confidence.

AB InBev declared its long-term commitment to Nigeria, highlighting its investment in expanding capacity, including approximately N90 billion ($250 million) in the Sagamu plant and an injection of N124 billion ($341 million) through the rights issue, based on the exchange rates at that time.

Some might argue that AB InBev’s strategy in Nigeria appears to prioritize market share acquisition over profitability. However, given that profits are equally important, the company has made efforts to account for the factors contributing to its losses.

Management recently blamed higher energy prices, FX illiquidity, commodity cost headwinds, severe weather, and overall inflationary pressures as the major reasons for its poor performance.

Former MD/CEO, Hugo Dias Rocha stated that the company is committed to returning to profitability and creating value for our stakeholders. That responsibility now lies in the hand of Carlos Coutino.

International Breweries’ share price currently trades at N5.08 and has been one of the worst performers this year. It sells popular lager beers such as Trophy, Hero, and Grand Lager. Despite its losses, the company still recorded over N200 billion in sales, posting a revenue of N264 billion in 2023

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