Determinants of Profitability in the Nigerian Breweries Industry

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CHAPTER 1: INTRODUCTION3

1.1 Outline of the Study3

1.2 Background3

1.3 Problem Statement5

1.4 Aim of the Study6

1.5 Assumptions of the Study7

1.6 Objectives of the Study7

1.7 Research Questions8

1.8 Execution of the Study8

1.9 Dissemination of Finding9

1.10 Limitation of the Study9

1.11 Ethical Considerations10

1.12 Timeline11

CHAPTER 2: LITERATURE REVIEW12

2.1. Breweries Industry12

2.2 Scholarly review of Profitability13

2.3 Variables that Could Influence Profit Margins17

2.3.1 Sales17

2.3.2 Sales Per Employee and Payroll to Assets18

2.3.3 Industry19

REFERENCES20

CHAPTER 1: INTRODUCTION

1.1 Outline of the Study

This study will be based on the topic “Determinants of profitability in the Nigerian Breweries Industry”. The first chapter will provide an introduction to the topic including the purpose and aims of the study. The second chapter will present a review of relevant literature, highlighting the previous research carried out in this field. The third chapter will cover the methodology for this study. The analysis of findings and discussion will be presented in the fourth chapter. The fifth chapter will conclude the study, providing implications and useful recommendations for further research.

1.2 Background

The brewing industry is one of the fastest growing industries in Nigeria. It accounts to 28% of the MVA and brings a direct employment for 30000 individuals. The indirect employment related with the industry is close to 300000 that include the firms producing ancillary services. Beer is one of the common products which is produced in all the states of the country except Gongola, Bauchi, Niger and Sokoto and Borno (Industry Research Report,2010). There are 32 breweries which are producing more than 40 brands of beer. Moreover, there are five brands of malt drinks and stout. Production in the industry has grown rapidly. In the period from 1980 to 1982, brewing was the fastest growing branch of the manufacturing sector (Industry Research Report,2010).

The performance is encouraging considering the worsening infrastructural challenges under which the 2012 result was achieved. Another positive is that the margins when matched against existing inflation rate that currently stands at about 9 per cent per annum, implies that management was more prudent with the deployment of resources within the year under review.

In February 2013, Nigerian Breweries, the country's biggest brewer by market value, reported that full-year profits for 2012 were stagnant, with net income for the 12 months ending December was NGN38.1bn (US$241mn), and compared with NGN38bn a year earlier. Sales were up 20% to NGN252.7bn, but the cost of sales rose by 26% over the same period. The drop in profitability was attributed to an aggressive expansion plan that led to increased costs. Nigeria's beer industry is rapidly developing and is arguably Africa's most promising. Led by low-cost carbonates, soft drinks sales are increasing rapidly. The rapidly emerging middle class is likely to significantly boost the fast-moving consumer goods industry. Nigerian consumers are becoming more brand-conscious and interested in new products (Adjei,2010).

Many major producers are already present in both the soft and alcoholic drink markets, keeping competition and product innovation levels high. Despite encouraging growth, per capita soft and alcoholic drinks consumption remains ...