NIGERIAN BREWERIES PLC

The Economic Environment of the Nigerian Breweries Plc

The Economic Environment of the Nigerian Breweries Plc

Introduction

Economical Analysis involves the exchange rates and stability of the host country, skill level of work force, labour cost, and Economic level of growth, unemployment rate, inflation rate and interest rate.

Nigeria is a growing economy therefore it is less affected by the recent global economic financial crisis and this has a positive impact on the sales of Nigerian breweries products as people have disposable income and can spend more on drinking of beer products, this therefore is a positive development for the company (Malandrakis, 2009 pp.14-16).

Also, the unemployment rate in Nigeria is really high and it makes a lot of people idle and they spend most of their time at bars which helps increase the sales of beers.

The Exchange rate in Nigeria is low comparing to the US dollar and it can affect the business when the raw materials are being imported as it cost a lot of money.

Another economical issue which is affecting Nigerian Breweries negatively is based under the labour cost which is the lack of constant electricity supply in Nigeria; this has forced the company to make use of alternative means of power supply such as generators were the company spends a huge budget on diesel which has a constant increasing price.

Company's Background

Nigerian Breweries Plc (NBPLC) is the country's pioneer brewery. Incorporated in 1946, it commenced production in 1949. It started as a joint venture between the United African Company (WAC) International, UK and Heineken of Holland. Thus, at inception, it was 100 per cent foreign owned. By the early 1950s, when it began operating fully, some indigenous traders already involved with its products were invited to become shareholders. Under the indigenization policy of the early 1970s the foreign shareholders were forced to sell a significant proportion of their holdings.

Company's Adjustments to new market and conditions in Nigeria

While rising domestic inflation partly accounts for the 400bps erosion in NB's gross margin over the past 5 years, we observe that the brewer's exposure to the global market (imported inputs) has doubled from mid-teens in 2004 to c.30% as at December 2009(Malandrakis, 2009, pp.14-16). Given NB's naira-based sales, this mismatch in cost and revenue has heightened the vulnerability of profit margins to FX risk and volatile commodity prices. Easing input costs, relatively stable FX market and more importantly continued substitution of imported inputs by locally sourced varieties are major catalysts to our positive margin outlook for NB plc.

The last two years have seen management re-focus on product innovation with help from its parent company. Major investments include the re-launch of the Gulder and Amstel Malta brands, and the introduction of Fayrouz soft drink to Nigeria. In 2007, the company also commissioned a canning line at its Lagos brewery, and launched Heineken, Star and Amstel Malta in can packages. Sales volumes have since gone up by 24.5% and the company is currently investing massively in operations expansion, especially in terms of capacity ...