In its recent pronouncement , the management of Nigerian Breweries Plc has announced a move to audit its product portfolio and business mix to carve out non performing product lines for profitability purpose This ,indeed, signals a new hope for its stakeholders .
The reason for this new move may not be far to seek . This is not the best of times for the chief executive of the brewer of Heineken and other brands, Jordi Borrut Bel . Caught up in the reality of changing business lifecycles , he is currently battling the herculean tasks of stagnant growth, declining margins and falling market share that have become the hallmarks of his company .
This scenario has continued to raise questions against the company’s survival and leadership savvy of its CEO.. Virtually all the company’s performance indicators over the last three years are facing sharply southward ; its financial statements showing streamlined market share ,reduced profits and a tendency to be trapped in debt quagmire .
Gone are the days when Nigerian Breweries Plc ,NB PLC , reigned supreme, bestriding the Nigeria corporate world like a rock Gibraltar ; not only in its industry but in entire economy , it was a synonym of a powerful ,strong ,influential and reliable company . Today , it is a different story entirely .
.But the management appears to be ready to revive the company for better performance . Nigerian Breweries Plc said it plans to delist brands that are not performing well and be more focused on regions that bring in more sales and growth going forward .According to the chief executive of the brewer of Heineken and other brands, Jordi Borrut Bel at a pre-AGM briefing recently , the company wants to “do better in our operating income and profit in the years ahead.”
Bel also said the company will review its cost to ensure that every naira counts going forward.
He said in 2020, the financial results of the company were adversely impacted by Covid-19, increase in the Value Added Tax (VAT) rate, forex devaluation and scarcity of dollars, which affected timely payment of the brewer’s foreign suppliers.
“For 2021, we will strive to sustain the performance of the second half of 2020, driving premiumisation and growth.“However, we still expect a challenging operating environment with devaluation, forex scarcity, inflation and affordability.
“The capability of our people, focus on our consumers combined with commercial agility and position for growth gives us confidence that we will a continue wining with Nigeria,” Bel said.
. The company is well loaded with different and divergent brands of both alcoholic and non alcoholic drinks originated by itself and from its acquired companies .
Following the acquisition of Sona Systems and Life Breweries in 2011, Goldberg lager, Malta Gold malt drink, and Life Continental lager, were added to the brand portfolio. Also in 2014, as a result of the merger with Consolidated Breweries Plc, “33” Export lager beer, Williams dark ale, Turbo King dark ale, More lager beer and a malt drink, Hi Malt, became part of the company’s product offering. However, most of them have turned liabilities or conduit pipes draining its resources instead of adding values .The company increased its portfolio of brands with Legend Extra Stout in 1992 ; in 2014 with the addition of two-line extensions of the Star brand – Star Lite and Star Radler. The Ace brand in the Ready-to-Drink (RtD) category was launched in 2015 while Tiger lager beer was added to the portfolio of brands in 2018 . Among its cash cows in the brand portfolio of NB Plc are Star lager beer launched in 1949, Gulder lager beer in 1970. Maltina was in 1976 and another malt drink, Amstel Malta in 1994. Heineken lager beer was re-launched into the Nigerian market in 1998. Fayrouz, the premium non-alcoholic soft drink, was launched in 2006 while Climax herbal energy drink was launched in 2010.
The company has an export business, which dates back to 1986. The current export destinations are the United Kingdom, the Netherlands, the United States of America, Canada, some parts of Africa and parts of the Middle East and Asia. Over the years, NB Plc has establishment ancillary businesses in Nigeria. These include manufacturers of bottles, cans, crown corks, labels, cartons, and plastic crates as well as service providers including those in the hospitality sector, distribution, transport, event management, advertising, and marketing communication .
The question whose answer could not be specifically determined now is which of the products is or are to be sacrificed An insider noted that “though all the company’s products are good and competitive but since we have necessary data of sales on any of our products and businesses we know those to retain and those to be discarded” . According to him ,, the company is expected to delete any product that is not achieving the expected fit between the business units critical success factors and the parent skills ,resources and competencies as well as between business unit parenting opportunities and the parent skills and competencies . The problem is that the expected transfer of resource, capabilities and competencies is not seen to be adding value for either lack of relatedness or the management inability to manage their interactions of businesses.
For the company to be out of the precipice , some analysts and observers believe the management should fish out products and business portfolio mix reflecting balance and attractiveness in terms of how profitable they are and how fast they are growing ; those with high degree of synergies or as well as its corporate parent capacity to manage them are expected to be retained. Another issue that could be in front burner of the company is to unveil products and businesses that are strategically positioned and maximally targeted at different market segments to boost its earnings and achieve market power . The company may also reanalyze its pricing and marketing strategies and know if they are strong enough to beat its rivals and deliver market power
The current fate of this company could be situated squarely on miserable and bleak socio economic and political environment that has grounded many economic agents in the past few years. In 2020 financial year , unfavorable macroeconomic and socio political environment led to increase in the prices of raw materials and disruptions in logistics for many business operators. This is compounded by fall in consumers due to poor purchasing power hitting the players hard . “However, we still expect a challenging operating environment with devaluation, forex scarcity, inflation and affordability. “The capability of our people, focus on our consumers combined with commercial agility and position for growth gives us confidence that we will a continue wining with Nigeria,” Bel said.
To be competitive and reclaim its dithering glory , Nigerian Breweries must unlearn its past by failing to live in its past to be competitive .and recapture its past glory . Analysts believe there is a paradigm shift already in the industry necessitating a change of strategy . The company is believed to be currently living in its past . According to them , until now , food and beverage used to be attractive industries with above-average profitability ; they were attractive because they are surrounded by sizable entry barriers like scale and scope economies, government regulation and research intensity that keep new entrants out while firms operating in this industry could be assumed to possess competitive advantages that are not easily imitated.
However , with some unorthodox players redrawing industry boundaries so that what is now attractive lies outside the former barriers the insurmountable barriers to entry surrounding them are now broken. This is what has happened ; the market dynamics are changing fast with some unconventional players hotly challenging the orthodoxy in pricing and functionality . This picture has since changed as Anheuser-Busch In Bev (AB InBev), the world’s largest beer producer, entered Nigeria in 2016 as International Breweries.
Currently , new market and industry dynamics have reshaped competitive powers putting the old market leaders in tight corners .Just as bigness without stretch and leverage is obesity, smallness without stretch and leverage is impotence. .Ability and capacity to leverage resources to achieve more for less remains the ultimate joker of survival .
Will the new move of NB Plc rescue it from a potential distress lane ?
eyond rising material costs confronting the company , borrowing costs have been huge and the annual interest payment by virtue of these loans make the possibility of higher profits for the company a mirage.
Between 2019 and 2020 alone, long term loans and borrowings increased by 974% from N4.8 billion to as much as N51.8 billion. Even trade and other long term payables increased by 35%. The Company had also obtained Capital and Working capital finance from the BoI in 2019. It is no news that the company is involved in diversified lease arrangements . Following reclassifications made in 2019 to some of its lease assets, the 2020 asset base also witnessed significant increase in Right of Use Assets which increased by 288%% from N11.1 billion to N42.9 billion. Yet, the fact that in one year, interest expense on Lease Liabilities rose from N19.7 million in 2019 and to a whopping N4.171 billion shows that the company is taking way more debt than its books require.
The overall increase in total liabilities might not have been such a bad idea if the funds were being used to increase revenue and profits. In 2020 , Net Income for NB Plc was posted at N7.36b, a huge 54% fall from 2019 figures. NB Plc has seen negative Net Income figures since 2018 and posted negative Total Revenues numbers for two out of the last three years since 2018.
The twist in its fortunes is negatively affecting its ability to pay its creditors too . The current ratio is a liquidity ratio that measures a company’s ability to pay short-term obligations or those due within one year. Though this ratio varies from industry to industry, between 1.5 and 3 percent are acceptable for healthy businesses. In the case of NB Plc, 0.58 percent is the best in the last four financial years. It means the company lacks the wherewithal to pay its creditors as and when due at the current rate.
The company is not also able to meet its short-term financial liabilities, going by the figures of its quick ratio in the last four years, as it falls far below the generally acceptable figure of 1, as the best it had recorded in the past four years was 0.36.This is reflected in the EPS figure of just 0.92 posted in 2020. This fall in earning has pushed the price earnings to Earnings Ratio to a high of 60.82
Buffeted by above forces only few are seem to be in control of their own destiny. The foundation of the past have shaken and fractured because the industrial terrain changed shape faster than the top management could refashion its basic beliefs and assumptions which markets to serve ,which technologies to master ,which customers to serve and how to get the best out of employees. When there is a discrepancy between the change in the pace of industry environment and pace of change in the internal environment that brings out or spawn the daunting task of organization transformation , only those with a drive strategic leverage could survive .
Auditing product and business portfolio is a corollary of restructuring . When the above become inescapable most executives pick up the knife and begin the brutal work of restructuring. And the goal is to carve away layers of corporate fat ,jettison underperforming businesses and raise the asset productivity.. However , those executives who don’t find room for emergency surgery may loose their jobs. Even when they retain their jobs , this strategy doesn’t make their companies an industry leader .
Only those players with better strategic foresight and competencies to shape industry evolution will survive the challenges of the new dynamics . Most those facing this critical challenge of maintaining their market share and power prefer the former strategy trying to protect their past instead of creating a future . To meet up with the above challenges most of the players in this sub sector have ,at one time or the other embarked on downsizing , engaged in overhead reduction, employee empowerment, process redesign and portfolio rationalization. The reason behind this may not be far to seek Any company that is bystander and not a driver on the road to the future will find its structure, values and skills becoming progressively less attuned to an ever changing industry reality . The available joker in the hands of the key the players is price cutting which can only be delivered by productivity improvements using cost reducing as differentiator . But they were seemed to be boxed to tight corners as prices cannot be cut forever.
It may be advisable for the management of the Nigerian Breweries to vacate from any unnecessary diversification too , even within its value system ,that has turned a conduit pipe for it hard earned fortunes for stability and competitiveness in its core businesses . To some observers and analysts , its forward and backward integrations as well as its activities which are either competitive or complementary to its current activities are merely diversionary .
But most importantly ,, the company is expected to target its resource leverage in the areas that make the most difference to customers. Also its capacity to mine ideas for improvement and innovation from each and every incremental experience is a critical component of resource leverage needed by this player . The above initiatives will surely sharpen its competitive edge . This is necessary to confront the current change of competitive dynamics against it mostly from unconventional players .
Just as necessity begets invention, stretch begets resource leverage . Tactical creativity is the child of resource scarcity and that is what the management needs .Resources are leveraged when they are targeted in the areas that make the most difference to customers. The capacity to mine ideas for improvement and innovation from each and every incremental experience is a critical component of resource leverage needed by this player .
Unless this company is equipped powerfully by the power of foresight that delivers prescience needed to proactively shape the industry evolution , to establish its company as the intellectual leader in terms of influence over the direction and shape of industry transformation that gives a company the potential to get to the future first and stake out a leadership position that informs new corporate direction it will be difficult to control the evolution of its industry and thereby its destiny . Industry foresight is based on deep insights into the trends in technology, demographics, regulation, and lifestyles that can be harnessed to rewrite industry rules and create competitive space is essential for a rebirth of Nigerian Breweries not mere product and business restructuring