2014 Breweries Sector Report

Nigeria
Brewing Sector Report
July 2014
Breweries Sector Report 2014
Unearthing the compelling growth potentials
Equity Research | www.meristemng.com | July 2014
Nigeria
July 2014
Investment Prcis
Analyst
Olawale Olusi
olawaleolusi@meristemng.com
+2348025672325
Introduction: This report reassesses the most recent developments in the Nigerian
brewing space noting the fact that developments in the global brewing market stays
consistent with trends in domestic economies.
Global beer market: Mergers and Acquisitions (M&As) appear to be the most
remarkable trend in the global beer industry. To stay dominant, profitable and more
competitive, top players are expanding into markets with the highest potential for
growth via M&As. As beer volume growth begins to slow in developed markets,
Africa and emerging market economies (EMEs) are now the major engines for
growth. Given the above, the top beer companies seem to be on a quest to identify
which of the EMEs portends the largest potential for growth thereby driving a
remarkable global expansion into these growing markets in a bid to capture more
market share.
Africas blooming market: With a consumer market of over one billion people,
average GDP growth of 5% up to 2020 and a beer consumption per capita of 9liters
(vs.25liter peer average), beer volume growth in Africa is without doubt compelling.
Two of the big four largest players (SABM and Heineken) have their foot prints
firmly rooted in Africa. SABM dominates the continent with 35% volume share,
Heineken and CASTEL in the second position share 23% each whereas, Diageo
controls 13%. We think markets with the strongest fundamentals for growth will
attract further investment going forward.
Eye on the Nigerian brewing Space: Nigeria is the most populous and largest
economy in Africa, with substantial potential for a double digit growth. Huge
consumer market, beer consumption deficit and demand deficit plus intense
competition are amongst the major driving factors in the Nigerian brewing space.
Drags in discretionary spending as well as security challenges remain the key
challenges to the budding prospect. Nonetheless, we project five year beer volume
growth at 24.25mhl, translating to a 5% five year average growth rate.
Dominant global players: Heineken N.V controls 70% of Nigerian beer market with
majority stake in Nigerian breweries, Consolidated and Champion breweries Plc.
Diageo is the second major player (27%) through its ownership of GUINESS Plc. New
entrant, SABMiller, is challenging the dominance of the major players via stake in
International breweries and Pabod breweries.
Unearthing the compelling growth potentials: In this report, we uncover the eyecatching growth potential in the Nigerian beer market as a key volume growth
driver in Africa and the rest of EMEs.
Nigeria
July 2014
Table of Content
Executive prcis
1. Brewing in the Global Space
5-8
Overview
Industry Consolidation shaping the global market dynamics
Global beer market outlook
2. The African Brewing Market
Eye Catching Growth Story
Competitive Landscape in Africa
11
Prospect For Growth Remain Strong
12
3. The Nigerian Brewery Sector Overview
13
Structure of the Nigerian Beer market
15
Market Share: A terrain of two dominant players
16
Beer consumption: Nigerians drink-less compared to peers
19
Key Growth drivers: The demographic dividend fulcrum
19
Major Challenges: Discretionary spending softens
21
22
Five Competitive Forces Shaping the Beer Industry In Nigeria
26
Financial Ratio analysis
27
28-30
Valuation
28
Industry prospects
29
Where do we see the beer market going forward?
30
6. Company Analysis
22-27
Beer Making Inputs
5. Industry Prospect and Valuation
13-21
The Nigerian Beverage Market
4. Value Chain Analysis
9-12
31-53
Quoted Brewers
31
Nigerian Breweries Plc.
33-38
Company Profile
34
Route to the Market
35
Nigeria
July 2014
Performance + Outlook
Guinness Nigeria Plc.
39-42
Company Profile
40
Route to the Market
41
Performance outlook
42
International Breweries Plc.
44-50
Company Profile
46
Route to the Market
47
Performance and outlook
48
Other Listed Beer Makers
51-53
Champion Breweries plc.
51
Jos Int. Breweries Plc.
52
Premier Breweries Plc.
53
Golden Guinea Breweries. Plc.
53
7.
8.
9.
10.
36
Non-Quoted Brewer: Consolidated Breweries Plc.

Concluding Highlights
Appendices (Financials: Historical+ Forecast)
Analyst certification, Disclaimer and Disclosure
Glossary
53
53
54-60
61-65
66-67
Nigeria
1.
July 2014
Brewing in the Global Space
1.1 Overview
Exhibit1:
Despite the effect of global economic crunch on discretionary spending and by

implication on the beer consumption, the Canadian beer report held that
average growth of the global beer industry is expected to expand by 2.8%
between 2009 and 2015, although this is expected to vary across regions. The
Middle East market is forecast to grow by 5.5% CAGR (2009 to 2015) while Asian
and African markets are to expand at 5% CAGR and Latin American by 3%. In
contrast, consumption in European and American markets is expected to
experience marginal growth in the same period.
Global Beer Production (Mhl) by Region 2013

2011
Millions
Beer is the most widely consumed alcoholic beverage in the world after water
and tea. According to Euro-monitor, Beer volume and value grew by 7% and 2%
respectively in 2013. Canadian global beer trend report estimates beer
consumption at 2bn hectoliters (hl) in 2013.
Australia
1%
Africa
7%
2012
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
-
Europe
28%
Asia
America
Europe
Africa
Australia
Asia
35%
America
29%
Source: Barth Report 2013
Though the global growth in the industry is expected to be driven by the

developing markets, European and American markets continue to account for
more than 50% of global beer production.
Nigeria
Exhibit2: Global Beer production by Brewers
July 2014
Global Beer Production by Country

42.3%
42.5%
Others
18%
32.5%
25.1%
Top 4
Countries
48%
22.5%
11.8%
12.5%
Next 35
34%
6.8%
5.0%
4.8%
4.2%
2.5%
CHINA
USA
BRAZIL
RUSSIA
GERMANY MEXICO
others
Source: Barth Report 2013
According to the 2013 Barth report, Africa accounts for 7% of the total global
production making the region the least producer. Asia is the largest producer
accounting for 35% of total global production in 2012. USA is the second with
11.8%; Brazil, Russia, Germany and Mexico follow with 6.8%, 5%, 4.8% and 4.2%
accordingly.
When considered globally, an obvious feature is the dominance of global

production of beer by the four brewing giants (ABInBev, SABMiller, Heineken
and Carlsberg) accounting for 48% of total volume produced.
1.2 Industry Consolidation shaping the global market

dynamics
ABInBev, SABMiller, Heineken

and Carlsberg have emerged
top four after series of
consolidations.
Industry consolidation is perhaps the most noteworthy feature in the global

brewing space as globalization and rapid consolidation continue to inform M&A
amongst the largest global industry player. Over the last ten years the top ten
industry leaders have gone through continued steady consolidation in a bid to
forge stronger, more profitable and competitive global institutions.
Exhibit3 below shows how market share among top players has been changed
between 2003 and 2013, with Anheuser-Busch topping the list in 2003 (8.5%
market share). However, in 2013, consolidation between Anheuser-Butsch,
Interbrew and Ambev has led to a more competitive, stronger and bigger
ABInBev with 21% market share.
In 2013, ABInBev completed the acquisition of Mexican brewer, Grupo Modelo.

Heineken acquired Asia Pacific Breweries and Molson Coors acquired StarBev in
Central and Eastern Europe. CR Snow (SABMillers joint venture with CRE)
announced the intended acquisition of Kingsway Brewery in China.
Nigeria
July 2014
Exhibit3: Industry Consolidation in the Global Brewing Space

2003
2013
Anheuser-Busch
8.50%
ABInBev
21%
SABMiller
7.60%
SABMiller
10%
INTERBREW
6.00%
Heineken
9%
HEINEKEN
5.70%
Carlsberg
6%
Ambev
4.00%
CRB
6%
Grupo Modelo
2.60%
Tsingtao
4%
Adolph Coor co.
2.60%
Molson Coors
3%
Tsingtao
2.20%
Beijing Yanjing
3%
Carlsberg
2.00%
Kirin hold co
3%
Asashi group
2.00%
Asashi group
1%
Others
56.80%
others
35%
Source: Euro-monitor, Goldman Sachs Global Investment Research
Biggest five global Firms

account for 52% global
volume produced
Exhibit4a:
The biggest five global industry players produce 52% global beer volume. They
continue to drive regional expansion both organically and through acquisitions;
increasing their collective share of the market at the expense of smaller players,
while the next 6 firms produce 13%. Others account for the remaining 35%.
ABInBev, SAB-Miller (SABM), Heineken and Carlsberg are currently the top
global players by market share with 21%, 10%, 9% and 6% in that order.
Global Market Share among Top Ten Global Players

BIG 4 GLOBAL PRODUCER
MARKET SHARE
352.9
350
300
250
200
150
100
50
0
ABinBEV, 21%
others, 35%
190
SABMiller, 10%
171.7
Heineken, 9%
120.4
Asashi group, 1%
CRB, 6%
kirin holdco, 3%
ABINBEV
SABMiller
Heineken
Carlsberg, 6%
Carlsberg
Tsingtao, 4%
Beijing yanjing,
3%
Molson coors, 3%
Source: Euro-monitor, Goldman Sachs Global Investment Research and Barth report
Nigeria
July 2014
1.3 Global beer market outlook: Africa and developing

markets to drive growth
African and Latin American

markets are spotlights for
long-term global volume
growth.
Exhibit4b:
Overall, with slowing growth in beer volume in the developed market,

indications remain enduring that developing markets are the main engine to
drive growth in the global beer market. With improving disposable income and
consumer spending, consumers in these markets are seen trading unbranded
alcohol for more standardized beer, hence, strong volume growth in Africa, Asia
and Latin America. However, the global players continue to screen these
markets with a realization of uneven attractiveness amongst them. African and
Latin American markets emerge as spotlight for long-term global volume
growth.
Around the World in Alcohol
Source: WHO
Nigeria
2.
July 2014
The African Brewing Market
2.1 Eye Catching Growth Story
With a population size of 1.03bn people and a projected growth rate of 2%

(CAGR) up to 2020, Africa will account for 20% of the global population by 2020
according to IMF estimates. By income, the continent is projected to grow by 7%
up to 2020. Six among the top ten fastest growing economies in the world are in
Africa, with Nigeria, the most populous and largest economy growing at an
average growth rate of 6.5% for the past 5 years.
1.03Bn people
Population growth of 2% CAGR to

2020
Avrg. GDP growth of 6% to 2020
Six fastest growing economies are in

Africa
2011-2020 CAGR Beer market 4.1%
BCCP 9liters Vs.
2012 Beer production
Africa has sustained steady

growth in a decade
compared to developed
markets.
125.06 mhl
Relatively, Beer volume has shown remarkable growth in Africa in the last 10
year due to improving income level, expanding middle class and changing
demographic features compared to other region. We reviewed data on beer
volume growth globally, Exhibit 5 below indicates that, while the composition of
volume growth continues to dip in the America and Europe, (32.40% &34.90% in
2003 vs. 29.28% & 27.94% in 2012), Africa and Asia have sustained a steady
growth in the same period. (26.90% &4.40% in 2003 vs. 35% & 6.41% in 2012).
Nigeria
July 2014
Exhibit 5: African Beer Volume Growth in 2003 vs. 2012
2003
2012
Africa
7%
Africa
4%
Source: Beverage Marketing corp., Barth Report.
Despite the appealing fundamentals, Beer consumption per capita (BCCP) in

Africa is very low (9liter per head, Global insight 2012), compared to other
markets. This number implies that the potential for growth for beer
consumption is massive in the region. The sectors 10-year average growth rate
(CAGR) of 4.1% substantiates this view.
Exhibit 6: Per Capital beer consumption (BCCP) in African vs. Peers and 2020 forecast CAGR
60
BCCP
Avrg BCCP
CAGR
50
40
9%
7%
30
5%
20
3%
10
0
1%
E/ Europe
Latin America
China and
S/E Asia
S/korea
Source: Global Insight, Euro-monitor, Plato beer report
AME
India and Sri

lanka
10
Nigeria
July 2014
Exhibit7: Beer Volume Growth In Africa Vs. Global Growth

REGION
2003
2005
2007
2008
2011
2012
Asia
26.90%
28.50%
31.20%
31.70%
35.25%
35.27%
America
32.40%
31.60%
29.90%
30.00%
29.31%
29.28%
Europe
34.90%
34.10%
33.10%
32.20%
28.49%
27.94%
Africa
4.40%
4.50%
4.70%
5.00%
5.82%
6.41%
Australia
1.40%
1.30%
1.20%
1.20%
1.13%
1.11%
TOTAL
100%
100%
100%
100%
100%
100%
Source: Global Insight
2.2 Competitive Landscape in Africa
The Africa beer market is dominated by Global brands such as SABM and
Heineken, two of the big four. They have their foot prints firmly rooted in Africa.
SABM dominates the continent with 35% market share; Heineken and CASTEL
occupy the second position with 23% each, Diageo, the parent company of
Guinness Nigeria Plc. Follows with 13% share of the market, Others makers
control the residual 6%.
Exhibit 8: Beer volume market share in Africa
6%
13%
35%
SABM
HEINEKEN
CASTEL/BGI
DIAGEO
OTHERS
23%
23%
Source: Plato African beer report 2012
11
Nigeria
July 2014
2.3 Prospect For Growth Remain Strong
We suspect that attention

will focused on markets with
the strongest fundamentals
for growth in Africa
Going forward, the prospect for long term growth of the sector in Africa and
developing economies remain strong. This will be driven by factors such as
improving level of income, huge consumer market and attractive demographics.
Besides, in a bid to enlarge market share and stay dominant the degree of rapid
consolidation (M&A) among major players in globally, is expected to serve as an
impetus for this growth. Most of the major firms are currently undergoing
regional expansion, both organically and via acquisition most especially into the
high growth sub regions in Africa.
However, we note the awareness of uneven growth amongst these states. On
the back of this, we suspect that attention will be focused majorly on economies
in Africa with the strongest fundamentals for growth.
12
Nigeria
3.
July 2014
The Nigerian Brewery Sector Overview
Demographics
Population: 170M (2013est)
Most populous in Africa
c.70% of population < 30 years
Median age: 19yrs
Religion: 45% Christian, 48% Muslim

and 7% indigenous
Economy
Largest economy in Africa
GDP NGN80.09Tri
5yr Avrg. GDP Growth of 6.5%
Largest oil producer in Africa

Beer Market
10yrs Avrg. growth of 10%, 2011
2020 est. CAGR of 5.9%
Installed capacity: >26.9mhl
BCCP: 10Liters
Political Stability
Moderate
3.1
Coca-cola dominates the

CSD segment, but La-Casera
is gaining a lot of ground.
The Nigerian Beverage Market
Nigerias beverage industry is largely dominated by the Beer and Carbonated

Soft drink (CSD). Packaged Juice, Spirit, Wine and Other Ready-to-drink
beverages (RTDs) cover the remainder. Report by Heineken quoted CSP
magazine and indicated that, of the total beverage volume in Nigeria, 45.29% is
attributed to the beer segment, 42.06% goes to CSDs, Packaged Juice takes
10.29% whilst Spirit, Wine and RTDs takes the remaining 2.35% in 2010.
The Soft Drink Market: The CSD segment of the market is dominated by the
Nigerian bottling company (NBC- bottles Coca-Cola and Fanta brands) given the
long established history of the Coca-Cola Company in the country together with
strong distribution network and aggressive marketing techniques. 7-UP bottling
company, the bottlers of the Pepsi and Mirinda brands is however another
multinational CSD player.
13
Nigeria
July 2014
Exhibit 9: Beverage Market Breakdown In Nigeria (mhl) in 2010f
16
15.4
14.3
12
8
3.5
0.3
0.3
0.2
Spirit
Wine
RTDs
0
Beer
CSD
Juice
Source: Heineken, CSP

sa
Health and nutritional

awareness is driving
growth Chi-vita controls
45% market share.
Notable among the domestic players is the La Casera Co, Ltd (formerly known
as Classic Beverages Nigeria Ltd)the producer of the La Casera brand, with
innovative marketing strategy such as beauty contests (Miss La Casera) continue
to gain a distinct proportion of the market. The company recently introduced
the first sugar-free carbonate with real fruit, Latina. According to Euro-monitor,
the company was one of the first to use PET (Polyethylene Terephthalate)
bottles and has introduced a new 'Ice Feel' bottle to raise the stakes.
The Packaged Juice segment: Awareness about Health and Nutritional balance
(better education about nutrition and risk factor embedded in high sugar
consumption which may lead to diabetes, obesity and hypertension) is growing
amongst Nigerians. This has so far led to a sustained growth in the fruit juice
consumption as against CSDs. Other notable factors include busier life style
amongst the rising middle class has left majority with less time to prepare
balance nutrition for their family hence juice consumption is resorted to as a
suitable way of ensuring the intake of essential nutrients.
Also, the sophisticated social life style and the value Nigerians placed on social
occasions also serve as contributory factor driving the growth of juice
consumption amongst Nigerians. Hence, more consumers generally favour
packaged juice to CSDs. Chi Nigeria Ltd (45% volume share) dominates the
segment with varieties of the Chivita brand, ahead of NBCs 5-Alive brand (35%
volume share). Other players in the segment include GlaxoSmithKline Nigeria
Plc, Dansa Foods, Cway Food & Beverages Co Nig Ltd, Frutta Juice & Services Ltd
and Fumman Foods Industries Nigeria Ltd.
14
Nigeria
Alomo Bitters threatens

other alcoholic beverages
including beer Guinness
introduced Orijin bitters in
reaction
July 2014
The Spirit and Wine Segment: A phenomenal game changer in the spirit
segment of the alcoholic drink market was the introduction of Alomo bitters in
2010, an alcoholic herbal drink that challenged the dominance of all other
alcoholic drinks (other spirit) including beer. The product was favoured by the
majority as a result of the perceived medicinal benefits and virility in men
accorded to herbal products.
The product is inexpensive (NGN180 to NGN250) compared to other spirits and
Lagers. Growth in consumption of Alomo was partly responsible for the drag in
the performance of beer in 2012 according to Euro-monitor. As a result of this
trend, Guinness Nigeria Plc (a subsidiary of the Diageo group with key strength
in the spirit segment in Africa) recently launched Orijin bitters, a blend of herbs
and fruits with bitter-sweet flavor to challenge the dominance of Alomo bitters
in the segment.
3.2 Structure of the Nigerian Beer Market
Beer market growth

experienced drags in recent
time compare to historical
average of 10%.
Growth: Though the history of the Nigerian Beer industry may be traced back to
period prior to the independence of Nigeria. It was the establishment of
Nigerian Breweries limited in 1946 that pioneered brewing in Nigeria. Based on
the report by the Financial Derivative Company (FDC) on the Nigerian beer
market, beer makes up 96% of all alcohol sales in Nigeria, historical data
suggests that beer consumption in Nigeria has been experiencing an average
growth of 10% for the last ten years (2002 2012).
Exhibit 10: 10Yr Growth path of the Nigerian Beer Market
21.00
19.00
17.00
CAGR 10%
15.00
13.00
11.00
9.00
7.00
5.00
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E
Source: Heineken, Meristem Research
NB: 2013E is based on Meristem Researchs estimate
15
Nigeria
July 2014
This growth hinges on the huge demographic features, a population of 170M

people, growing middle class, abundant oil reserves, and an enormous
consumer market. As at 2012 estimate, the value of the Nigerian beer market
pegged at 20mhl. However, as a result of higher cost of living, slowing
discretionary income pressuring spending and insecurity challenges, recent
performance of the sector has recorded a drag. The industry climbed 3% in
2012 compared with 11% in 2011, while the 2013 performance has been
estimated to decline by 3%.
Segmentation and Market Channel: A further breakdown of the Nigerian beer

market indicates that of the total beer consumption in Nigeria, Lager beer takes
58% of the market share; Stout has 27% while 15% goes to Malt. In terms of
consumption channels, majority of Nigeria beer consumers (c.40%) drink in beer
Parlours, 28% through provisional store purchases, 13% via informal
convenience spots, while the rest go through kiosks, restaurants and hotels and
others.
Exhibit 11: Segment Distribution of the Beer Market
Nigeria Beer Market Channels

5%
Beer Segment
Stout
Beer Parlour
6%
Lager
27%
3%
Provision Store
5%
40%
Malt
58%
Informal Conveniences
Kiosk
13%
Restaurant
Hotel
15%
Others
28%
Source: Nigeria Breweries
3.3 Market Share: A terrain of two dominant players
The Nigerian brewing space can be approximated as an oligopolistic-duopoly,

with two major players controlling about 90% of the market, while other fringe
players control a thin margin of the market.
Nigerian breweries (NB), without mincing words, is the biggest player in the
sector with a total installed capacity of 15.4mhl (61% volume share). Guinness
16
Nigeria
July 2014
Nigeria Plc. (GUINNESS) is the second biggest player (5.5mhl installed brewing
capacity and 27% share), while others include consolidated breweries
(CONSBREW) with 3.7mhl (10% market share), International breweries Plc
(0.5mhl), Champion Breweries (CHAMPION) and Jos Breweries (JOSBREW) are
among the fringe players (2% market share).
Exhibit 12: Nigeria Beer Market Share
10%
Beer Volume Share
2%
NB
Guinness
consolidated
27%
others
61%
Source: Heineken, FDCL, Euro-Monitor
Heineken controls more than

70% of the market with
interest in NB, CONSBREW
and CHAMPION
Heineken controls over 70%: Heineken N.V Global, with majority stake in NB,
CONSBREW and Champion Breweries Nigeria Plc. control 71% of the Nigerian
beer market. The three companies operate independently in the Nigerian
market, but their operations are consolidated in the financial of Heineken
global. Champion Breweries Nigeria Plc. was fully integrated in 2013 via a
transfer of 57% stake from CONSBREW to Heineken through her wholly owned
subsidiary, Raysum Nig. Ltd.
Heineken recently announced its intention to merge the operations of NB and
CONSBREW. Post merger, both entities are to exist as NB with a wider product
portfolio in both the premium and value segment of the market. It must be
noted that Heineken has been strategic in the operations of both companies in
terms of area of focus. Whilst NB dominates the market in the premium and
mainstream segment of the of the beer market with brands like Gulder, Star
lager and Heineken, CONSBREW plays the same role in the lower end/Savings
segment with cheaper and low income earner friendly brands like 33 Export
lager, Turbo King amongst others.
GUINNESS controls 27% of the Nigerian market: GUINNESS is a subsidiary of

the Diageo Group. The company produces the most popular stout (Guinness
extra stout). The beer maker started operations in Nigeria in 1963, with Lagos as
17
Nigeria
July 2014
its first location outside the British Isle to brew the Guinness brand. Currently,
Nigeria is the largest Guinness Stout Market in the world by Net Sales Value.
Guinness has a market share of 27% in Nigeria.
SABM continues to intensify
regional penetration...Trophy
& Hero Lagers are piercing the
western and eastern Nigeria.
SABMiller threatens dominant players: The latest amongst the global bigwigs in
Nigeria is SABM through its stake in Pabod Breweries Ltd (Port Harcourt) in
2008. In 2012, following the combination of the Castel and SABMiller businesses
in Nigeria and Angola, SABM took operational management of the Castel
Nigerian business, International Breweries (INTBREW) on the 1st of January
2012. Other acquisitions include, Intafact Beverages Limited (Onitsha), Voltic
Nigeria Ltd (Lagos). SABM is the largest beer producer in Africa and 2nd largest
brewer in the world with more than 200 beer brands and some 70,000
employees in over 75 countries.
It must be said that with recent investment of over US$100 million in Nigeria,
SABM is intensifying its penetration into the Nigerian market through strategic
regional approach, the most popular brands currently gaining a lot of patronage
in the country include the Trophy and Hero brands with markets in the South
Western and Eastern parts of Nigeria respectively.
Exhibit 13: Global Players in Nigeria 2014
Global players
HEINEKEN GLOBAL
Domestic Subsidiaries
Installed capacity
(mhl)
Nigerian breweries
15.4
Consolidated breweries
3.7
Champion Breweries
0.5
19.6
DIAGEO GROUP
Guinness Nig. Plc.
5.5
SABMILLER
International breweries
1.8
Pabod Breweries Ltd (PH)
na
Intafact Beverages Ltd (Onitsha)
na
Voltic Nigeria Ltd (Lagos)
na
Source: Company fillings
18
Nigeria
July 2014
3.4 Beer Consumption: Nigerians drink-less compared to

peers
Exhibit 14: Nigeria Beer Consumption Per Capita (BCCP) in liters 2012
70
BCCP
60
Peer average
50
Global Avrg.
40
30
20
10
S/Africa
Angola
Kenya
Namibia
Nigeria
Tanzania
Source: Plato, Euro-monitor, Global Insight
At 11liters per head, the

prospect for beer volume
growth is massive.
In terms of beer consumption, Nigerias beer consumption per capita (BCCP)

was estimated at 11 liters in 2012. Though this represents a significant growth
compared to 5 liters in 1999, it is still very low in the context of african peer
average of 36 liters (S/Africa-62liters, Angola-50liters, Kenya-42liters and
Namibia-40liters) and 25.67 liters global average.
3.5 Key growth drivers: The demographic dividend fulcrum
Growth Drivers
Growing
population
Discresionary Income
Demographics
Effective
marketing
Distribution network
Acquisition and
Expansion
Population: A critical factor driving the beer market growth in Nigeria has been
the huge population of the country. 2013 population estimate stays at
170Million, which puts the countrys consumer market on an amazingly
attractive level.
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Nigeria
July 2014
Income: The correlation between the beer consumption and income growth is
positive and significant according to recent studies. Income per head in Nigeria
has been growing reasonably well over the last decade at an average of 7.5%
according to World Bank data, while average growth of the beer market over
the same period correspond to this at 11%. Hence with rising level of disposable
income, discresionary consumption is expected to rise. However, the last two
years have witnessed a huge amount of pressure on consumer spending given
the removal of fuel subsidy, higher cost of living and security challenge which
have all led to the drag in the volume growth amongst major players in the
sector. Nevertheless, we think with election spending and improvement in
security situation, this pressure should ease going forward.
Demographics: Nigerian demographic dividend is another key driver of growth

of the breweries market. The country has a median age of 19years,c.55% of the
population is within the age bracket of 15 to 65years. The age distribution is
bottom heavy with only 2.73% as aged. Middle class is rising and urbanization
rate is expected to maintain a growth rate of 3.75% up till 15. We believe these
features point to the likelihood for beer consumption growth.
Effective Marketing: Marketing and distribution efforts among brewers is

another key growth factor for the industry. Top Management of the two major
players (Nigerian Breweries and Guinness) continue to leverage on strategic
means to market dominance with huge expenditure on marketing and
distributive activities to stay dominant, visible and appealing to the huge
youthful popuation. Sponsorship of football games, advertisements on national
and international events and reality shows are amongst the popular channels
used in reaching the target market. A more meticulous observation suggests
that NB has been more consistent with the sponsorships of Nigerian reality TV
shows such as Gulder Ultimate Search, Maltina Dance All, Star Quest and the
companys consistent sponsorship of the UEFA Champions League in recent
times.
Distribution Network: In terms of distribution network, NB sustains dominance

with the widest distribution network. The company has a fully integrated route
to the market, (total retail outlets of 525500, 35000 bulk breakers, 2000
wholesalers and 150 key distributors) and brewering plants well spread across
the southern and northern geo-polical zones of the Country. Its major
competitor, Guiness has a distribution network of over 200 Guinness
distribution centers, substantial amount of distributors and a distribution driving
team.
20
Nigeria
July 2014
Acquisition and expansion: As noted earlier, industry consolidation is a

recurring affair and a critical success factor in the global brewering sector.
Ability to expand and possibly acquire less dominant players is a major driving
force in increasing market share and maintaining dominance. While the two
leading brewers have leveraged on expansion and CAPEX over the years, the
entrance of SABM with the acquisition of INTBREW and PABOD breweries has
challenged the dominance of the leading two, reinforcing how acquisitions can
be crucial in the development of brewery businesses.
3.6 Major Challenges: Discretionary spending softens

High cost of
living
Health
awareness
Competition
from other
Non-Alcoholic
beverages
Declining
consumer
spending
Religiousity
Major
Challenges
Security
challenges
Declining discretionary spending: A recent drag to growth in recent times is the

waning discretionary spending being observed in Nigeria. This is said to have
dipped as a result of partial removal of fuel subsidy in 2012 which has resulted
in higher cost of living, and consequently, less expenditure on discretionary
consumption.
Security challenges: The heightened menace of extremist activities in the

northern part of the country brought about an increase in prices of basic food
stuff and hence increased the cost of living. Also, frequent bombing and
sporadic shooting, has gradually discouraged going to joints and bars that
account for 40% of beer consumption channel. Higher living cost pressurizes
household income and consumption spending, which trickles down to less
demand for beer.
21
Nigeria
July 2014
Non-alcoholic beverages: Apart from the lesser spending impact, increasing

competition from non-alcoholic beverages as well as other alcoholic beverages
excluding beers, as noted above (Alomo bitters) continue to challenge the
market share of the beer segment of the beverage industry.
We attribute other challenges dragging the growth of the brewers to factors

such as increasing health consciousness amongst the Nigerian middle class,
drink-drive and drinking age campaigns, level of religious belief and Sharia laws
in some part of the Northern region.
4.0 Value Chain Analysis

Exhibit15: Beer Making Value Chain
WATER
Milling
BARLEY & SORGHUM
Mashing
Filtering
HOPS
Boiling
YEAST
Fermenting
Filtering
BOTTLE
Packaging
CAN
Distribution
Source: Guinness, SABM, Heineken, Meristem research
4.1 Beer Making Inputs
Major inputs: Key inputs in the preparation beer include Malting grains (Malting
barley, Sorghum and Maize), Hops, yeast and water. Average price of Barley in
the world market has stayed at USD133.90 so far in 2014 compared to over
USD200 in 2013 (12M average). Due to local content strategy, a 5% import duty
22
Nigeria
July 2014
is imposed on Barley importation. Imported barley, however, still makes up 50%

of consumption among brewers in Nigeria (through a joint purchase agreement
with their parent companies).
Industry sources amonst brewers: Malting grains account for c.40% while
Sorghum constitutes 7% of raw materials amongst major beer makers. NB
currently sources 43% of her raw materials locally but has a target of 60% local
sourcing of malting grains as part of its local content strategy. SABMs strategic
plans include buying grains from local farmers in a bid to negotiate a tax
reduction agreement with government. The company is currently considering
the use of Cassava as a replacement for malting grain as a way of offering more
affordable beer to Africans. GUINNESS sources Barley majorly from Scotland,
Ireland and Kenya. The company sources for Sorghum majorly from Nigeria,
Ghana and Tanzania.
Nigeria is the largest producer of food sorghum (according to Heineken) which is

particularly attractive to brewers because of its malting quality. NB leverages on
local sorghum and continues to invest in research into development of better
capabilities. Hence, the company has maintained cost leadership amongst
brewers. Recent data indicate moderating prices of key inputs, so we do not
see any major risk to cost structure in the short to medium term. We expect
brewers to continue to capitalize on innovation to minimise costs.
By-products: Spent inputs from beer making production process serve as

animal feeds (spent grains), fertilizers (Spent Hops), Irrigation (Water) and yeast
used for fermentation serves as input in Health products.
Exhibit 16: Beer Making Ingredients + By Products
Malting
Grain
Barley
Sorghum
Maize
Hop
Water
Yeast
BY PRODUCTS
Animal feeds
Fertilizers
Irrigation
Health Product
Source: Meristem Research
23
Nigeria
July 2014
Exhibit17: Global price of Malted grains

Barley ($/mt)
300
Sorghum ($/mt)
250
200
150
100
2010
10
10
11
11
11
12
12
12
13
13
13
2014
Source: World Bank
GZ Industries (GZI), the first

and the only Aluminum Can
beverage company in Nigeria
Packaging/ Bottling: A recent trend in Nigerian is the growth in the amount of

Canned beer. Compare to 2006 with 100% bottle package, canned beer has
grown to 8% as at 2011. Currently 75% of Cans in Nigeria are for malted drinks,
this proportion is followed by beer and then CSD.
Exhibit18:
DATE
2006
2009
2011
Source: Heineken
PACKAGING
BOTTLE
100%
97%
92%
CAN
0%
3%
8%
Local Aluminium Can Companies: Establishment of GZ Industries (GZI), the first

Aluminium can beverage company in Nigeria has reduced the amount of
imported can into the country and has enhanced local content strategy. Prior to
the establishment of GZI, 100% of can consumed in Nigeria were imported. The
company currently has a 1.4bn unit of can production capacity per anum with a
target of 1.6bn units by 2016.
The company recently expanded its operation into Aba (Eastern Nigeria) to
meet the needs in the eastern part of the country, where major brewers are
expanding or building new capacity to meet the need of its customers (beer
makers). We think this is a great development for the breweries sector as
expansion of the can producer is expected indirectly enhance the cost profile
in the sector. However, the 100% dependence of GZI on global price of
aluminium exposes beer makers to indirect risks of global price volatility.
24
Nigeria
July 2014
Exhibit 19: Global price of Aluminium (USD)

Aluminum ($/mt)
2900
2700
2500
2300
2100
1900
1700
1500
1300
2010
10
10
11
11
11
12
12
12
13
13
13
2014
Source: World Bank
25
Nigeria
July 2014
4.2 Five Competitive Forces Shaping the Beer Industry In

Nigeria
Buyer Power -Moderate
The buyers of beer are represented by alcoholic beverage wholesalers, supermarkets, as
well as beer parlours, restaurants and clubs.
There is a large number of buyers
The buyers are able to switch brands easily
Buyers' power is high.
High buyers power is offset by varying preferences of the consumers
Supplier Power-Moderate
The power of suppliers is Moderate
Beer producers need the same input to produce beer (Malted barley, hops, sugar and
water)
No raw materials differentiation.
Innovation and creativity are the key sources competitive advantage.
Threat of New Entrants-Moderate

This threat is moderate given that major regulation is the possession of the license
requirements to operate in Nigeria.
Apart from states with Sharia laws that forbid alcoholic products, there are no strict law
regulations on alcoholic products in Nigeria.
Though CAPEX requirement is huge, itis not a major challenge to global player with eyes
on developing markets.
Threat of Substitutes-High
This is high given a large diversity of substitutes to beer
Other alcoholic and non-alcoholic beverages and soft drinks (CSD, Wines, spirit and
jucie).
Cheaper prices of other alcoholic beverages
Rising health concerns of the consumers.
Degree of Rivalry-High
Rivalry is high
Industry is oligopolistic
Two dominant players have more than 90% market share.
Other smaller players are gradually establishing regional visibility.
26
Nigeria
July 2014
4.3 Financial Ratio analysis
Cost to sales ratio: 5-year average cost to sales ratio for the Nigerian beer
market settles at 52.63%. Common size analysis of the major players indicates
that NB holds cost leadership (51% 5Yr average cost to sales) compared to
GUINNESS (53.46% 5Yr average cost to sales).
OPEX Margin: The Nigerian beer market is highly advert intensive, with keen
competition between dominant player to expand or retain market share. As a
result of this, OPEX margin (sales and Distribution expenses) averaged 24.51%
among key players. 5yr average OPEX margin shows that NB stayed dominant in
terms of OPEX effciency with 23.54%, compare to GUINNES (25.47%) .
Profitability: Industry net-margin as proxied by the 5yr average of the two

dominant firms stood at 15.25%. Return on Equity (ROE) averaged 44.36% while
Return on total Asset averaged 19.69% for the sector. In all NB show better
operational efficiency compare to GUINNESS with all its (NB) key performance
metric showing better effeciency compare to the industry. Overall, Return on
Equity (ROE) is driven largely by Net profit margin which relies majorly on cost
effciency.
Exhibit 20: Industry Ratio comparison (5-Year Average)
Ratio Analysis
NB
GUINNESS
INTBREW
Average
Cost to Sales Ratio
51.80%
53.46%
61.45%
55.57%
Gross Profit Margin
48.20%
46.54%
38.55%
44.43%
OPEX Margin
23.54%
25.47%
28.37%
25.79%
ROAA
21.93%
17.44%
0.71%
13.36%
Current Ratio (x)
0.75
1.13
0.95
0.94
Quick Ratio (x)
0.54
0.83
0.88
0.75
Cash ratio (x)
0.21
0.3
0.07
0.19
Inventory turnover (x)
4.87
3.54
3.12
3.84
ROE
49.40%
39.32%
-12.07%
25.55%
Net Margin
16.19%
14.32%
-0.94%
9.86%
1.25
1.18
0.58
1.00
Asset Turnover (x)

Leverage (x)
2.46
2.36
3.98
2.93
EBITDA Margin
30.21%
23.52%
8.67%
20.80%
Operating profit (EBIT) margin
25.05%
21.57%
11.24%
19.29%
Interest burden
Interest Coverage (X)
Tax burden
Interest coverage
0.95
0.95
1.63
1.18
54.97
25.14
41.86
40.66
0.68
0.7
0.14
0.51
54.97
25.39
40.35
40.24
Source: Meristem Research 2014
27
Nigeria
July 2014
5. Industry Prospect and Valuation

5.1 Valuation
Seven brewing companies are listed on the Nigerian stock exchange (NSE), with
NGN1.49trillion market capitalization. Together, they make up 12.37% of total
market capitalization of the NSE. Of the seven listed brewers NB, GUINNESS and
INTBREW represent 99% of the brewer market cap. Consequent on this, we
adopt NB, GUINNESS and INTBREW as proxies to represent the Nigerian brewing
space.
By relative valuation, current earnings multiples put sector average PE ratio at

36.03x, this is ahead of three years historical average of 27.79x. While Book
value multiple suggests a current PBV ratio of 9.57x compared to 3 yr average
PBV ratio of 7.87x.
Though PE ratio suggests that the sector is over priced compared to historical
price, whilst PBV of 9.57x vs 7.87x historical average support this position
further, we think the sector may be fairly over price at current price. Dividend
yield is however trailing the market at 2.70% vs. market yield of 3.47%.
We think the sector may be

fairly over price at current
price as current PE of 36.03x is
ahead of average PE of 27.79
Exhibit 21: Sector Valuation

Tickers
Div. Yield
Average P/E
Current PE
Average P/B
current P/B
GUINNESS
3.89%
27.77x
31.89x
7.91
7.18x
NB
3.07%
25.72x
30.83x
12.27
12.99x
INTBREW
1.14%
29.90x
45.38x
3.43
8.55x
Sector
Average
2.70%
27.79x
36.03x
7.87x
9.57x
Source: Meristem research
28
Nigeria
July 2014
5.2 Industry prospects
Despite recent slowing growth in the sector, we see huge potential for growth
going forward. Exhibit 22 below show the relationship between beer market
value growth and Per Capita income (PCI) growth in Nigeria.
Our ten years correlation analysis between beer market growth and increasing
per capital income established a strong positive correlation (0.97) between
both variables.This is further butressed the slope and R-Square value of 2.01
and 55% respectively. In sum, these metrics indicate that beer market
expansion stays strongly consistent with Per Capita income (PCI) growth in
Nigeria.
Exhibit 22: Correlation Analysis of Beer Market Volume vs.PCI (USD) in Nigeria (2002-2012)
Beer Vol.
25.0
Beer Volume growth is

consistent with Per Capita
income growth in Nigeria.
Market value
Linear (Market value)
20.0
15.0
10.0
Beer Vol. = 2.01 PCI
R = 0.55
5.0
6.76
7.26
7.83
8.04
8.32
8.62
8.89
9.26
9.73
10.16
10.52
Source: World Bank, Heineken, Meristem research
Also, the fundamentals of the Nigerian Economy remain very strong. According
to NBS, Population growth is projected to grow at 2.3%. This puts the countrys
population at over 220M by 2025. The UN forecasts that Nigerias population
will surpass that of the US by 2050. Middle class and Urbanisation rate are
expanding significantly, and age ditribution favours a youthful workforce (more
than 55% between age 15 to 65 years), implying increasing demographic
divdends for the country.
These numbers point to the fact that Nigeria remains a huge consumer market
for the beer sector to grow, and we expect this to translate into a massive
opportunity for growth.
29
Nigeria
Exhibit 23:Population Growth & Forecast
July 2014
Nigeria GDP (trn NGN) + Forecast
Old GDP
220
190
180
trillion
Millions
Million
200
2.3% Growth
170
115
103
105
85
160
75
81
71
63
54
55
140
45
130
35
90
85
65
140
96
6.5% growth
95
170
150
New GDP
34
37
41
42
2012
2013f
25
120
2005
06
07
08
09
10
11
12
13
2025
15
2010
2011
2014f
2015f
2016f
2017f
Source: NBS, World Bank
Macro Economic outlook: Nigerias GDP has sustained an average growth rate
of 6.5% over the last 7 years. Following the rebasing of the GDP of the country,
Nigeria became the largest economy in Africa with a GDP figure of USD510,
ahead of South Africa and 21st in the World. Per Capita income is estimated at
USD2,760 The services sector emerged as the major driver of the economy with
53% of sector breakdown. Agric and Industry now take 22% and 25% share
accordingly. Recent commitment of Governemnt to revive key sub- component
in the services sectors indicates that services sector growth may be larger than
anticipated (7.72%). Based on the foregoing we strongly believe that the
output level will continue to expand by over 6% for the next 5 years and this is
expected to impact the Beer market growth positively.
GDP is expected to grow by

over 6% for the next 5-yrs
expected to impact beer
market positively
5.3
Our projection puts 5-year

beer market growth at
24.25mhl
Where do we see the beer market going forward?
Given the established strong positive correlation (relationship) between beer

market growth and income per head, juxtaposing this with the attractive
fundamentals of the Nigerian economy, we maintain that there exists a
significant positive relationship between income growth and Beer market
performance. Against this background, we project an annual growth rate of 5%
for the breweries sector going forward. Consequently, our projection put 5years beer market growth at 24.25mhl.
30
Nigeria
July 2014
Exhibit 24: Nigeria Market Growth + 5Yr forcast (mhl)

26
24.25
24
CAGR 5%
22
20
mhl
19
18
16
14.64
14
12
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Source: World Bank, Heineken, Meristem research
6.
Company Analysis
6.1 Quoted Brewers
There are seven quoted breweries company on the Nigerian stock exchange.
These include Nigerian Breweries Plc (NB), Guinness Nigeria Plc (GUINNESS),
Internatinal Breweries Plc (INTBREW), which are the three largest in terms of
market capitalization. Others include Champion breweries Plc. (CHAMPION), Jos
Breweries (JOSBREW), Golden Guinea Breweries Plc (GOLDBREW) and Premier
breweries (PREMBREW). All together, the seven listed beer producers have a
total market capitalization of NGN1.75trillion representing 12.36% of the NSE
market capitalization.
We further categorize the aforementioned beer makers into Large Cap (market
capitalization of NGN100bn and above), Mid Cap (Market capitalization
between NGN1bn to NGN100bn) and Small Cap (Market Capitalization less
than NGN100bn) brewers, based on market capitalization of these company.
Based on this classification, we classify NB and GUINNESS as large cap, INTBREW
CHAMPION and JOSBREW fell within the Mid Cap criteria while PREMBREW and
GOLDBREW are grouped as the Small Cap beer makers.
31
Nigeria
Exhibit 25:
July 2014
QUOTED BREWERIES FIRMS

Share
Outstanding (bn)
Mkt. Price
Mkt. Cap (bnNGN)
Mkt. Cap (%)
Rating
NB
7.56
178.20
1,347.19
77.04%
HOLD
GUINNESS
1.51
198
298.98
17.10%
HOLD
3.26
28.05
91.44
5.23%
SELL
0.9
9.67
8.70
0.50%
UNRATED
0.56
2.58
1.44
0.08%
UNRATED
GOLDBREW
0.27
0.71
0.19
0.01%
UNRATED
PREMBREW
0.98
0.77
0.75
0.04%
UNRATED
1,748.71
100.00%
Ticker
Large Cap
Mid Cap
INTBREW
CHAMPION
JOSBREW
Small Cap
Source: NSE, Meristem research
The remainder of this report analyses the performance of each of these

companies. Though the availability of information on the Mid to Small Cap
stocks was a constraint, efforts were made to do a thorough overview of each of
these companies as mentioned above.
32
Nigeria
July 2014
NSE: NB; Bloomberg; NB: NL
Sustaining Dominance through Strategic Expansion

With an installed brewing capacity of 15.4mhl/pa and continuous capacity
improvement. The beer maker has a market share of c.60% in the Nigerian beer
industry. Following the recent acquisition of Sona Systems Associates Business
Management Limited and Life Breweries Company Limited from Heineken
International B.V, the premium beer maker has indicated the proposal to merge its
operation with that of Consolidated Breweries Plc, a sister firm in the value segment
of the sector. The market share of NB is expected to jump to over 70% once the
merger is concluded.
NGN169.12
Rating:
HOLD
Market Information
Current Price
52wks high
52wks low
Mkt Cap 'bn
Average Value (mn)
Average vol.(mn)
S/Outstanding (bn)
5.74% turnover growth in line with expectation: In the last 2014H1 result, NB posted
a turnover growth of 5.74% (NGN141.49bn vs. NGN133.82bn Q2:2013) despite issues
around keen competition, sector slowing growth due to pressured consumer
discretionary income and security challenges in the northern part of the country. We
attribute the sustained impressive performance of the premium beer maker to
increasing operating efficiency and well spread route to market.
NGN
177.09
181.03
141.55
1,339
278.83
1.709
7.563
Valuation Metrics
Market Price
2014EPS
2014BVPS
12-month TP (N)
Capital Gain
Dividend Yield (2014)
Total Return expected
Ratings
P/E
P/BV
Beta
COE
ROE - 5 year avrg.
ROE - 2014
Div. Payout 5 year avrg.
Div. Payout 2014e
Cost of sales increased by 5.79% year-on-year (NGN71.35bn Q2:2014 vs. NGN67.44bn

in Q2:2013) compared with most recent five year average growth of 12.35%;
suggesting improvement in cost management. Also, Cost to sales ratio settled at
50.42% in the period (vs. 50.40% in erstwhile period) to further buttress the
aforementioned most especially when compared to peer average of 52.63%., We
pegged our full year cost to sales ratio at 49.19% on the back of improving cost
management.
Earnings growth buoyed by declining finance cost: Juxtaposing revenue growth with
cost efficiency, NB posted a double-digit earnings growth, i.e. PBT and PAT growth of
23.95% and 15.53% respectively. The result indicates that earnings expansion was
driven not only by operating efficiency, but also by 37.53% decline (NGN2.37bn vs.
NGN3.82bn in Q2:2013) in interest expense and 60.12% increase in finance income
(NGN0.602bn vs. NGN0.376bn in prior period).
NB is rated a Hold at current price: We adopt a blend of dividend discount model
(DDM) and relative pricing valuation to arrive at a fair value for NB. The companys
consistent dividend payout history of 70.35% (5-year historical average) informed our
adoption of DDM model, while relative pricing model factors in some sentiment on
the stock. In all, valuation put target price at NGN169.12 which suggests an upward
review from NGN156.11; but a downside potential of 4.50% compared to current
price of NGN177.09. We therefore maintain our HOLD rating on the stock.
Target Price:
USD
1.11
1.14
0.89
8.41
1.75
0.01
NGN
174.43
5.70
14.86
169.12
-4.50%
2.92%
-1.58%
HOLD
5.70x
14.86x
1.32
20.77%
49.40%
40.48%
70.35%
80..0%
PRICE TRAJECTORY
6
NB
NSEASI
5
4
3
2
1
0
2007
08
09
10
11
12
33
13
14
Nigeria
July 2014
6.2.1 Company Profile
NB has over 6 decades history of operations in the Nigerian brewing space, the
beer maker has sustained the position of both the pioneer and largest brewing
company in the country. A subsidiary of Heineken N.V, one of the top four
Brewing giants in the world. Hence, Heinekens stake in NB is strategic to its
business priorities of capturing opportunities in Africa and its growth drive into
emerging economies (EMs) with a 55% beer volume in EMs vs. 45% in
developed markets.
Heineken strategy in emerging market is captured in its 8 cardinal points of;

investing to build strong brand, optimizing route to the market, build strong
local brand, investing ahead of the curve, build international premium segment,
engage with government, brewing a better future, and exploring new market
opportunity.
Given the investment of Heineken Global in NB (54%) and a total installed

brewing capacity of 15.4mhl/pa, NB sustained dominance in the Nigerian beer
market in terms of market value and brewing plants. Heineken has further
indicated its intention to merge the operations of Nigerian Breweries Plc and
Consolidated Breweries Plc (Another subsidiary of Heineken in Nigeria). This
merger is expected to bring to total install capacity of NB to 19.1mhl and total
market share to 71%. Both entities will exist as Nigerian Breweries Plc. post the
merger.
Currently, the premium brewer operates with 10 brewing and malting plants
(Kakuri brewery, Kudenda brewery and Kudenda malting plant in the Northern
part of Nigeria, Lagos, Ota and Ibadan Breweries in the south-western part of
Nigeria, Onitsha, Aba and Ama breweries and malting plants in south east
Nigeria) to retain 61% market share.
Exhibit 26: Geographical Spread of NBs Brewing and Malting Plants
Shareholding Structure
OTHERS
14%
STANBIC
NOMINEES
32%
HEINEKEN
54%
34
Nigeria
July 2014
In terms of market capitalization and holding structure, NB is one of the top

most capitalized stocks listed on the NSE with a total of NGN1.16trillion,
representing 9.30% of total market capitalization. The shareholding structure of
NB has Heineken with 54% majority holding, Stanbic Nominees as the second
largest shareholder with 32% while other holders share the remaining 14%.
By product portfolio, the company operates a broad base product portfolio

across all the segments of the market from international premium (IPS),
national premium (NPS) to mainstream and savings segment. In the IPS
segment, Heineken lager sells at NGN260, Gulder lager beer sells at NGN210 in
the NPS segment, while Star lager (NGN200), Legend extra stout (NGN200) and
Maltina-non-alcoholic malt drink (NGN100/120) sell within the mainstream
segment. Others include Amstel malta, Goldenberg, Malta gold, Climax and
Fayrouz. The most recent innovation to the portfolio is the introduction of Star
Lite Ice Cold Filtered lager, an extension line of Star lager. The temperature
sensitive labeled beer contains no additives and preservatives and is a healthy
offering for all our health conscious consumers, according to management.
Exhibit 27: Product portfolio
6.2.2 Route to the Market
Route to the market: NB has a fully integrated route to the market that links
production to retail oulets via key partners. This is conducted through direct
sales from 150 key distributors and 2000 wholesalers to 52500 retail outlets
through a channel of 35000 bulk breakers. The company continues to grow
35
Nigeria
July 2014
cooling capacities in its outlets to give its customers increasing optimal

satisfaction. Overall, 23% of the outlets are located in lagos, 31% in South-West,
16% in the South, 10% in the East and 20% across the Northern region. This is
further supported with customer and consumer targeted reality shows for each
of the brands to drive sales across each of the brand portfolios. Notable among
these are, Maltina Dance All, Gulder Ultimate Search, Star Time,Real Deal,
Heinekens sponsorship of the UEFA Champions League and the most recent
hosting of the UEFA cup in Eko Hotel and Suites here in Lagos to sustain
consumers loyalty.
Exhibit 28: Route to the market
35000 Bulk
Breakers
NIG.BREWERIES
PLC
10 Brewering and
Malting Plants
150 Key
Distributors
2000 Whole
Salers
525000
Retail Outlets
CUSTOMERS
Source: Heineken presentation.
6.2.3 Performance+ Outlook
We note the sustained dominance of Nigerian breweries Plc. in the the Nigerian
market and the impact of the support of Heineken globals commercial
expertise on the performance of the Nigerian brewering giant. We think the
enhanced route to the market coupled with the companys continuous
investment in assets, people and brand innovation will continue to uphold
future performance despite the recent softness in consumer discretionary
spending.
Going forward, we see the performance of the company to be driven largely by

the proposed merger with Consolidated Breweries Plc. This is given the fact
that CONSBREW operates in the Value segment of the beer market which is
currently driving growth in the sector.Based on the foregoing, while we await
the updates on the outcome of the merger arrangment, we expect NB to sustain
a topline growth of over 7%, based on a 10.34% five year CAGR growth.
36
Nigeria
We think NB will continue to leverage on operational efficiency to improve

earnings growth. Our 5 years projection puts the companys EBIT margin at
28.24% vs. 25.05% 5 years historical average. PBT and PAT are expected to
expand by 9.82% and 10.18% accordingly.
Turnover
Turnover growth
Historical & Forecast PAT vs. Net Margin
30%
25%
20%
15%
10%
Millions
Millions
Exhibit 29: Historical & Forecast Turnover vs. Growth Rate

350
330
310
290
270
250
230
210
190
170
150
July 2014
70
PAT
60
30%
PAT Growth
25%
50
20%
40
15%
30
10%
20
5%
0%
2009 2010 2011 2012 2013 2014 2015 2016
5%
10
0
0%
2009
2010
2011
2012
2013
2014
2015
2016
Source: Companys fillings, Meristem research
37
Nigeria
July 2014
Exhibit 30: FINANCIALS and RATIO (MillionNGN)(HISTORICAL+FORECAST

NIGERIAN BREWERIES PLC
2011
2012
2013
2014f
Key Headlines
2015f
2016f
FORECAST HORIZON
Turnover
230.12
252.67
268.61
287.42
308.97
331.37
Gross profit
109.76
125.45
136.48
145.86
157.58
169.83
EBITDA
64.67
80.77
90.36
92.86
100.73
110.84
Operating Profit (EBIT)
56.65
63.93
69.17
78.92
85.81
94.92
Profit before Tax
56.37
55.62
62.24
71.77
78.79
87.43
Profit After Tax
38.03
38.04
43.08
49.49
54.69
61.09
Non-current Asset
153.14
196.77
207.47
209.72
224.40
237.93
Total Current Asset
63.24
63.24
63.24
63.24
63.24
63.24
216.37
253.63
252.76
269.87
288.76
308.25
72.21
72.21
72.21
72.21
72.21
72.21
Total Asset
Current Liabilities
Total non-current Liabilities
66.10
66.10
66.10
66.10
66.10
66.10
138.31
138.31
138.31
138.31
138.31
138.31
78.07
93.45
112.36
122.26
133.20
145.41
Cost to Sales Ratio
52.30%
50.35%
49.19%
49.25%
49.00%
48.75%
Gross Profit Margin
47.70%
49.65%
50.81%
50.75%
51.00%
51.25%
OPEX Margin
23.23%
25.14%
25.83%
23.49%
23.43%
22.81%
ROAE
59.30%
44.36%
41.86%
42.19%
42.82%
43.85%
ROAA
22.99%
16.19%
17.01%
18.94%
19.58%
20.46%
Current Ratio (x)
0.88
0.65
0.45
0.63
0.78
1.01
Quick Ratio (x)
0.57
0.55
0.36
0.52
0.53
0.70
Cash ratio (x)
0.30
0.11
0.10
0.11
0.24
0.31
4.94
4.88
5.83
5.94
5.41
5.40
ROE
48.71%
40.71%
38.34%
40.48%
41.06%
42.01%
Net Margin
16.52%
15.06%
16.04%
17.22%
17.70%
18.43%
1.06
1.00
1.06
1.07
1.07
1.08
Total Liability
Net Asset
Du-Pont Analysis
Asset Turnover (x)

Leverage (x)
2.77
2.71
2.25
2.21
2.17
2.12
EBITDA Margin
28.10%
31.97%
33.64%
32.31%
32.60%
33.45%
24.62%
25.30%
25.75%
27.46%
27.77%
28.64%
1.00
0.87
0.90
0.91
0.92
0.92
35.31
7.21
9.24
10.17
11.11
11.46
0.67
0.68
0.69
0.69
0.69
0.70
35.31
7.21
9.24
10.17
11.11
11.46
Interest burden
Tax burden
Interest coverage
Source: Company fillings, Meristem forecasts
38
Nigeria

Beset by Performance drag
Guinness operates as the second largest brewer in the country (after Nigerian
breweries Plc), with operating plants in four sites, (Ogba and Ikeja in Lagos, as well
as Benin and Aba). In the last two years, GUINNESS launched five innovative
products to support its weakening performance (Malta Guinness Low Sugar, Dubic
Extra Lager, SNAPP, Alvaro and the recent Orijin) in a campaign tagged the colourful
world of more. In order to enhance revenue and profit, the company has invested
NGN52bn to expand its breweries and distribution network. Although we expect
these huge investments to begin to strengthen performance, recent numbers
indicate sustained performance drags.
Dragging Performance depresses Bottom-line: The 9M Earning releases of the
premium brewer shows that revenue tumbled by 11.40% (NGN78.019bn vs.
NGN88.059bn in previous period) yet again. With this, the beer maker has recorded
three quarters of consecutive reduction in revenue (5.41% in 2014:Q1 and 13.34%
in 2014:Q2). Though management attributed this performance drag to sustained
softness in consumer discretionary spending, insecurity in the north and pricing
review, we suspect that keen competition in the Nigerian brewing space may be a
major factor responsible for the slowness in growth of the beer producer. The fact
that Nigerian breweries (GUINNESS major competitor) in the sector continues to
sustain top line growth despite the challenges in the industry buttresses this fact.
Slowing Revenue Growth Continues to Pressure Earnings: Despite declining topline, the companys nine month performance indicates that the brewer has
recorded improving cost of sale (NGN41.680bn vs. NGN48.110bn), representing
13.37% decrease in cost of production. This is also in line with the half year result of
the company, with a 15.65% slip in cost of sales. OPEX (NGN26.493bn vs.
NGN26.763bn) and finance charges (NGN2.597bn vs. NGN2.528bn) recorded
12Month marginal changes of -1.01% and 2.71% accordingly.
Shrinking turnover accounts for the major pressure on bottom line: With sustained
decline in revenue, PBT (NGN7.824BN vs. NGN11.234bn) and PAT (NGN5.943bn
vs.7.633) contracted further by 30.36% and 22.14% respectively. While EPS
followed suit with similar margin (22%) decline from NGN5.07 per share in previous
period to NGN3.95 currently.
July 2014
NSE: GUINNESS; Bloomberg; GUINNESS: NL
Target Price:
NGN199.20
Rating:
HOLD
Market Information
Current Price
52wks high
52wks low
Mkt Cap 'bn
Average Value (mn)
Average vol.(mn)
S/Outstanding (bn)
NGN
200
293.6
161
301.2
88.25
0.346
1.506
USD
1.29
1.84
1.07
1.94
0.55
Valuation Metrics
Market Price
2014eEPS
2014eBVPS
12-month TP (NGN)
Capital Gain
Dividend Yield (2014e)
Ratings
P/E
P/BV
Beta
COE
ROE - 5 year avrg.
ROE - 2013
Div. Payout Rate- 5 year avrg.
Dividend Payout Rate - 2013
NGN
200.00
7.88
30.57
199.2
-0.40%
4.30%
3.90%
HOLD
28.89x
9.21x
0.72
16.99%
38.04%
64.85%
85.40%
88.85%
PRICE TRAJECTORY
3.00
GUINNESS
NSEASI
2.50
2.00
1.50
1.00
The counter is rated a Hold at current price: We adopted a blend of DDM and
price multiples to estimate the intrinsic value of GUINNESS. On a dividend payout
assumption of 85% based on historical performance, our valuation model suggests a
12 month target price of NGN 199.20, implying an upside of -0.40% to current price
at NGN200. Hence, we recommend a HOLD.
0.50
0.00
2007
08
09
10
11
12
39
13
14
Nigeria
July 2014
GUINNESS is the second largest brewer in Nigeria. The company started

production in Nigeria following the establishment of the first brewing plant in
Lagos outside the British Isles In 1963. In 1965, Guinness Nigeria was listed on
the Nigerian Stock Exchange. With consistent growth of Guinness Stout and
Harp Lager beer in the Nigerian market, GUINNESS has expanded its brewing
plant from just one in Lagos to a total of four across Lagos (Ogba and Ikeja),
Benin and Aba in Abia state. The Company expanded its brewing capacity in
Benin and Ogba in 2011 to meet the growing demand of its consumers.
GUINNESS is a subsidiary to the Diageo Group (46% stake), the fourth largest
brewer in Africa and a world's leading premium drinks producer with a broad
base portfolio of spirits, beers and wines with popular brands like Johnnie
Walker, Crown Royal, J&B, Windsor, Buchanan's and Bushmills whiskies,
Smirnoff, Ciroc and Ketel One vodkas, Baileys, Captain Morgan, Tanqueray and
Guinness. Guinness Nigeria remains Diageos largest market for the sale of the
GUINNESS stout brand.
In terms of market capitalization and holding structure, GUINNESS represents

2.18% of NSE market capitalization with a market cap of NGN 301.2. While 46%
of the shares of the premium brewer is held by its parent company, Guinness
Oversea Ltd; other major stake holders include Atlantaf (8%) and the Nigerian
public (46%).
Exhibit 31: Geographical Spread of GUINNESS Brewing Plants
Shareholding Structure
Atlantaf
8%
Others
46%
Guinness
Oversea
Ltd
46%
40
Nigeria
July 2014
By installed capacity, GUINNESS holds the position of the second biggest player
in Nigeria with a total installed capacity of 5.5mhl, operated via its four brewing
plants in Lagos, Benin and Aba.
Product portfolio: The companys products include, Guinness Foreign Extra

Stout, Guinness Extra Smooth, Malta Guinness, and Harp Lager beer. Other
brands include Gordons Spark, Smirnoff Ice, Armstrong Dark Ale, Satzenbrau
Pilsner, Top Malt, Harp Lime, and more recently introduced Malta Guinness Low
Sugar. In response to the competition in the industry and the growing
challenges resulting from volume softness and slowing consumption the
company recently launched a number of innovative products to support its
performance (Malta Guinness Low Sugar, Dubic Extra Lager, SNAPP, Alvaro and
Orijin).
Exhibit32: Product portfolio
Source: Companys filings
Route to the market: The overall goal of increasing the availability of its brands
in key outlets is the major thrust of the companys strategy to increase market
share. The company intends to achieve this by increasing its direct coverage by
increasing the number of its sales personnel as well as dedicated teams to drive
distribution, and Increase availability in rural areas. The brewer boasts of over
200 Guinness distribution centers and a plan to continue to increase the
number of distributors. Other initiatives include, improving the efficiency and
effectiveness of distributors, sales force and sales organizations to enhance
turnover. Sufficient distributors funding and financing scheme, and new credit
terms are other means the company adopts for working capital management.
Apart from the above, GUINNESS also tries to stay in the sights of consumers
through sponsorship of popular events like the Barclays Premier League, FIFA
41
Nigeria
July 2014
World cup and the likes. With this, the company continues to catch the
awareness of its teeming consumers via beer parlours, viewing centers and
other sporting gatherings.
Exhibit 33: Route to the market

Outlet Coverage
Rural Distribution
Increased
availability of
brands & share in
key outlets
Increase availability
in rural areas
Substantially
increased direct
coverage
Over 200 Guinness

Distribution Centers
Substantial rise in
number of
distributors
Increase in sales
people
Pilot further
increases in Lagos
Dedicated teams
driving distribution
Off Trade Mgt

Increase
Sales Effectiveness
Working Capital
Share in the
growing off trade
channel
Improving the
efficiency of
distributors sales
force
Sufficient
distributor funding
to support growth
ambition
Dedicated Key
Account Structure
for modern retail
Improve the
efficiency &
effectiveness of
sales organization
Distributor
financing scheme
Piloting alternative
off trade route to
consumer
New Credit Terms

Sales Academy
6.3.3 Performance outlook

Guinness has invested NGN52bn in the last three years to expand its breweries
and distribution network. Recent (last two years) performance of the company
has not been impressive, owing partly to growing competition, slowing
consumer spending etc. which were noted earlier in this report. However, we
expect huge CAPEX and recent innovative products to strengthen performance
going forward. We also expect election spending to improve discretionary
spending. Based on this background, we anticipate that Guinness will grow topline by a modest 5% going forward. This is further supported by the companys
6.65% historical 5 year revenue CAGR.
Earnings: As stated above, Guinness has invested CAPEX worth NGN52bn in

plant and distribution expansion in the last 3 years. Earnings in this period were
strained by increased finance charges attributable to this investment.
Nevertheless, we expect Guinness to deleverage in the short to medium term, if
this play out as expected, moderating finance cost should begin to impact
positively on earnings going forward. On the back of this, we foresee the
premium brewer growing Net earnings by 9.53% on the average, for the next
5years.
42
Nigeria
Turnover
130
turnover growth
30%
125
20%
120
10%
115
0%
110
105
-10%
2010
11
12
13
14e
15f
Millions
Millions
Exhibit 34: Historical & Forecast Turnover vs. Growth Rate
July 2014
Profit After Tax
19
17
15
13
11
9
7
5
3
1
Net Margin
50%
40%
30%
20%
10%
0%
16f
2010
11
12
13
14e
15f
16f
Source: Company fillings, Meristem research
Exhibit 34: FINANCIALS and RATIO (MillionNGN)(HISTORICAL+FORECAST

GUINNESS NIGERIA PLC
Key Headlines
Turnover
Gross profit
EBITDA
Profit before Tax
Profit After Tax
Non-current Asset
Total Current Asset
Total Asset
Current Liabilities
Total Liability
Net Asset
Cost to Sales Ratio
Gross Profit Margin
OPEX Margin
ROAE
ROAA
Current Ratio (x)
Quick Ratio (x)
Cash ratio (x)
Du-Pont Analysis
ROE
Net Margin
Asset Turnover (x)
Leverage (x)
EBITDA Margin
Interest burden
Tax burden
Interest coverage
2012
2013
2014e
2015f
116.46
55.18
31.39
21.90
20.38
14.21
77.23
28.78
106.01
45.20
22.20
67.40
39
122.46
56.08
29.16
20.61
17.01
11.86
88.82
32.24
121.06
51.28
23.75
75.02
46
114.50
53.82
30.61
21.10
20.81
14.15
85.60
59.86
115.66
35.57
31.92
67.50
48
52.62%
47.38%
29.22%
36.03%
14.34%
0.64
0.53
0.11
4.00
54.21%
45.79%
29.62%
28.03%
10.45%
0.63
0.57
0.06
5.19
53.00%
47.00%
29.27%
30.05%
11.96%
1.68
1.21
0.47
3.32
2016f
2017f
FORECAST HORIZON
118.22
124.14
130.96
56.16
58.96
62.47
30.31
31.65
32.86
22.16
23.39
24.91
23.05
23.58
24.78
15.67
16.04
16.85
88.17
88.03
91.97
61.56
63.13
68.13
118.82
122.91
128.40
46.39
52.80
46.88
21.92
17.19
26.07
68.31
69.99
72.95
50.51
52.92
55.45
52.50%
52.50%
52.30%
47.50%
47.50%
47.70%
29.45%
29.15%
29.18%
31.77%
31.01%
31.10%
13.37%
13.27%
13.41%
1.33
1.20
1.45
0.96
0.86
1.06
0.37
0.34
0.39
2.53
2.58
2.61
36.81%
12.21%
1.10
2.75
26.95%
18.80%
0.93
46.98
0.70
10.46
25.77%
9.69%
1.01
2.63
23.81%
16.83%
0.83
10.46
0.70
5.42
29.39%
12.36%
0.99
2.40
26.73%
18.43%
0.99
5.42
0.68
9.96
31.03%
13.26%
1.00
2.35
25.64%
18.75%
1.04
9.96
0.68
10.71
Source: Company fillings, Meristem forecasts
30.30%
12.92%
1.01
2.32
25.50%
18.85%
1.01
10.71
0.68
11.42
30.39%
12.87%
1.02
2.32
25.09%
19.02%
0.99
11.42
0.68
11.89
43
Nigeria
July 2014
NSE: INTBREW l Bloomberg INTBREW NL
Riding on SABMS Strategic Objective

Revenue Growth Pressured by slowing Growth and Competition in the Sector:
INTBEW operate majorly in the value segment of the beer market, with broad
base product portfolio in the south-western part of Nigeria. We attribute recent
impressive performance of the company to its concentration on the value
segment which is currently driving the overall growth in the breweries industry.
INTBREW grew its 2014FY turnover by 6.36% a huge deviation from five year
historical average growth of 103.62%. Performance in the last three quarter saw
a significant increase in its product portfolio which initially included Trophy
Larger beer and Betamalt. Newer products such as Castle milk stout, Castle larger
and Redds as well as other products from SAB Miller brands (Grand malt, La
Voltic Water plus other castle brands) have been introduced. Improved route to
market in our view accounted for the turnover growth recorded in recent times,
however, 6.36% 2014FY turnover growth of the beer maker indicates that the
brewers operations is having its share of the slowing growth and keen
competition in the sector.
Going forward we expect the company to leverage on its strength in the value
segment of beer market to sustain positive topline growth, even as it ride on the
strategic relationship with its parent company (SABM) to stay competitive.
Improved Cost Management but Higher Finance Cost, Pressured Earnings:
INTBREW recorded significant improvement in its production cost as 2014FY cost
of sale declined 0.99% (NGN9.591 Vs.NGN9.687 in 2013FY), cost to sales ratio
moderated to 51.86% (vs. 2013FY: 55.71%). When compared to 3-year historical
cost to sales ratio of 62.46%, this suggest impressive improvement. Nevertheless,
INTBREWs earnings for the year was pressured by an unusual jump in finance
charges which went up by over 5000%, hence earnings before tax settled at
NGN3.925 (vs.NGN3.556 in 2013FY) representing a 10.40% growth. However, the
companys after tax profit dipped 9.53% due to deferred tax liability of
NGN1.36billion.
Market price runs ahead of fair valuation: We adopt a blend of dividend
discount model (DDM) and relative pricing valuation to arrive at a fair value for
INTBREW. The company has proposed a 32kobo dividend for the year, this
implies a 50% payout and a dividend yield of 1.14%. Valuation put 12 month
target price at NGN21.22, which imply a downside potential of 24.37% compared
to market price. Hence the stock is rated a SELL.
Target Price:
NGN21.22
Rating:
SELL
Market Information
NGN
USD
Current Price
28.05
0.18
52wks high
30.01
0.19
52wks low
18
0.12
Mkt Cap 'bn
92.00
0.57
Average Value (mn)
20.03
0.13
Average vol.(mn)
0.85
S/Outstanding (bn)
3.263
Valuation Metrics
Market Price
2014EPS
2014BVPS
Target Price
Capital Gain
Dividend Yield (2014)
Ratings
P/E
P/BV
Beta
COE
ROE - 5 year avg.
ROE 2014
Div Payout Rate-5 yr avg.
Div Payout Rate 2014
NGN
28.05
0.65
3.45
21.22
24.4%
1.14%
-23.2%
SELL
43.5x
8.68x
0.64
16.77%
21.69%
18.7%
41.1%
50.0%
PRICE TRAJECTORY
NSEASI
INTBREW
1.40
1.30
1.20
1.10
1.00
0.90
0.80
Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14
44
Nigeria
July 2014
International breweries Plc. is the third largest brewer in Nigeria (by market
capitalization). Following the rejuvenation of the brewing plant in Ilesha, Osun
State after more than 2 decades of zero production and sustained losses,
INTBREW has regained renewed impetus for revenue growth in the last 2
financial years. Incorporated in December 1971, the company commenced
production in 1978 with an installed capacity of 200,000hl/annum. With
increasing demand, INTBREW increased capacity to 500,000hl/annum. However,
in the late 80s as the companys performance was fraught by deteriorating
fortune. Consequent on this, INTBREW moved to increase share capital in 2008
given a turnaround prospect for a better future. This move has been remarkable
in the transformation, expansion and renewed profitability in the company in
recent time.
From a unit price of 87kobo in 2007 the companys share price has risen to as
high as NGN30 in January 2014. This overwhelming price performance is
attributable to number factors. The most notable of these factors include the
combination of the Castel and SABMiller businesses in Nigeria and Angola which
caused a takeover of operational management control of Castels Nigerian
business, International Breweries (INTBREW), by SABMiller which took place on
the 1st of January 2012, a deal worth over 6bn. SABMiller, the second largest
brewing company in the world by volume, and largest in Africa, has brewing or
beverage interests in 32 African countries. The Global brewing giant entered the
Nigerian market in 2009 with the purchase of a controlling interest in Pabod
Breweries, based in the southern oil hub.
In terms of capacity, INTBREW currently has a total installed brewing capacity of

0.5mhl. By market capitalization, INTBREW is worth NGN79.25bn. This represent
0.65% of the NSE market capitalization which places the company as the third
largest brewer in Nigeria by market Capitalization.
INTBREW operates from Ilesha Osun state south-west Nigeria where the
brewing plant is located. By ownership structure, Brauhaase Intl Mgt GMBH
hold 46% of th companys shares, L.A. Pro Shares Limited held another 46%
while the remaining 8% is held by the general public.
45
Nigeria
Exhibit 35:
July 2014
SHARE HOLDING STRUCTURE

Others
8%
L.A. Pro
Shares
Limited
46%
Brauhaase
Intl Mgt
GMBH
46%
INTBREWs product portfolio include Trophy Lager, which is currently a regional

premium with growing popularity among the south-western consumers, Castle
Stout milk, Castle Lager, Grand malt, Beta malt and Voltic water.
Exhibit 36: Product Portfolio
Route to the market halving the price of beer: INTBREWs Strategy is based
on SABMs objective to make beer more affordable to the average African
consumer, which the the global beer maker sees as a medium to boost sales
volumes. SABM believe majority of the alcoholic beverages consumed in Africa
are home-brewed and informally produced and its strategy is to lure consumers
into the formal beer market. The company believes that as incomes rises,
consumers will move onto higher priced brands.
46
Nigeria
July 2014
Affordable beer: SABM therefore introduced affordable beer as part of its

overall product offering to win the market. To achieve this objective, the
company has a plan that proposes negotiating lower tax rates with
governments, on the agreement of buying grains from local farmers. A proposal
that is believed to play an important role in attracting government support. In
sum, to halve beer prices in Africa (where it is believe that beer is quite
expensive). SABM leverages on win-win propositions; attempts in negotiating
lower tax rates with government and subsequently generating revenue stream
for the government through beer productions; cutting costs and expanding
volume growth with a view to slicing prices by working with a strong group of
farmers who are contracted to produce grains in whatever form for brewing.
We note the impressive growth in INTBREWs Trophy lager, which continues to

enjoy a lot of popularity among the south-western consumers. We think this
growth and popularity can be attributed to the affordability and the quality of
the beer compared to its substitute in the lower income end of the market.
6.4.3 Performance and outlook
Performance outlook: As stated Earlier, INTBREW operates via a regional route

to the market. Major product portfolio concentrates on the lower end/ value
segment of the market, which currently accounts for overall growth in the
sector. In line with recent performance, the companys 2014Q3 turnover
jumped by 30.40%. This however translate to a 2014FY growth of 6.36%. We
think the company will continue to maximize its recent success in the regional
market while leveraging on the expectation of a stronger volume growth in the
brewing space going forward. Though we see tighter competition in the lower
end segment where the beer maker currently operate, (given the strategic
proposal of Nigeria Breweries), we believe INTBREW will ride on its affiliations
with SABM to stay competitive. Based on the foregoing, we estimate INTBREWs
five year growth to average 6.5%, though five year historical CAGR is 98.68%.
Earnings: INTBREW posted PAT growth of 9.08% as of 2013FY result. The

company continued its trend of reporting impressive declines in cost to sales
ratio over the last seven quarters (2014Q3:49.25% vs. 2013Q3: 50.87%, 2014Q2:
50.55% vs. 2013Q2: 52.15% etc), which continues to boost operating profits.
Finance charges meant to service term loan up to 2016 however continue to
pressure Earnings. Nevertheless, we see the beer maker growing profit by 6.68
% in the next 5-year based on the sustained positive outcome of the companys
turnarround strategy.
47
Nigeria
Turnover
120%
Turnover Growth
100%
80%
18
13
2014e
2015f
2016f
2017f
PAT
500%
PAT Growth
0%
40%
-20%
12/2013
July 2014
60%
0%
20%
2011

Millions
Millions
Exhibit 37:
23
-500%
-1000%
-1
-2
-1500%
2011
12/2013 2014e
2015f
2016f
2017f
Source: Companys filings, Meristem research
Exhibit 38: FINANCIALS and RATIO (MillionNGN) + FORECAST

INTERNATIONAL BREWERIES PLC
Key Headlines
Turnover
Gross profit
EBITDA
Profit before Tax
Profit After Tax
Non-current Asset
Total Current Asset
Total Asset
Current Liabilities
Total Liability
Net Asset
2011
Cost to Sales Ratio

Gross Profit Margin
OPEX Margin
ROAE
ROAA
Current Ratio (x)
Quick Ratio (x)
Cash ratio (x)
Du-Pont Analysis
ROE
Net Margin
Asset Turnover (x)
Leverage (x)
EBITDA Margin
Interest burden
Tax burden
Interest coverage
12/2013
2014
2015f
2016f
2017f
FORECAST HORIZON
20.88
10.02
5.06
5.36
4.53
3.08
9.37
5.85
11.80
3.58
3.83
7.41
14.19
52.00%
48.00%
22.41%
22.94%
16.48%
9.91
3.12
0.28
0.72
0.68
1.69
11.23
3.05
14.29
10.15
2.55
12.70
1.58
17.39
7.70
0.92
3.44
3.73
2.51
16.41
6.62
23.04
7.85
5.80
13.66
9.38
18.49
8.90
3.62
5.01
3.93
2.11
18.80
5.58
24.37
6.60
6.50
13.10
11.27
68.48%
31.52%
27.40%
-82.21%
-12.58%
55.71%
44.29%
24.65%
45.72%
13.43%
51.86%
48.14%
21.12%
20.39%
8.88%
19.70
9.26
5.01
4.66
4.07
2.77
19.87
5.93
25.58
7.35
8.82
16.18
12.65
53.00%
47.00%
23.43%
23.14%
11.08%
22.13
10.18
5.55
5.29
4.96
3.37
6.40
6.32
7.99
2.17
2.56
4.72
15.88
54.00%
46.00%
22.19%
22.42%
34.09%
0.30
0.27
0.03
4.02
0.84
0.71
0.13
4.75
0.84
0.78
0.06
4.10
0.81
0.73
0.08
4.73
1.63
1.46
0.18
5.02
2.91
2.50
0.41
5.63
-106%
-17%
0.69
9.02
3%
7%
94%
3.51
(2.49)
10.96
27%
14%
0.75
2.46
5%
20%
108%
10.96
0.67
186.40
19%
11%
0.76
2.16
20%
27%
78%
186.40
0.54
4.96
21.88%
14.06%
0.77
2.02
25.44%
23.67%
87.33%
4.96
0.68
6.76
21.69%
14.75%
1.77
0.83
24.22%
25.69%
84.43%
6.76
0.68
5.71
21.23%
15.24%
2.77
0.50
25.07%
23.91%
93.73%
5.71
0.68
11.95
Source: Companys filings, Meristem research
48
Nigeria
July 2014
6.5 Other Listed Beer Makers

6.5.1 Champion Breweries plc.
Company Profile: Champion Breweries Limited was changed to Champion

Breweries Plc on the 1st of September, 1992 after going through series of name
changes between 1974 (year of incorporation) and 1992. At inception, the Uyo
based beer producer had a total install capacity of 0.15mhl per annum. Given
demand pressures, the capacity of the company was expanded to 0.5mhl and
then to 1mhl. However, the CAPEX for this new capacity hurt the brewers
performance in the years between 1990 and 1991 which caused a shut-down of
the company. However, the advent of democracy in Nigeria brought about state
government and private sector partnership which led to the revamping and
rejuvenation of the plant for brewing 100% locally sourced raw materials in
2001. The company currently operates 0.5mhl per annum.
Product Portfolio: Notable amongst the product portfolio includes Champion

Lager and Champ Malta (to be reintroduced into the market). By market
capitalization, the company is worth NGN9.15 which makes the beer maker the
4th most capitalized brewer in the country.
Key Stakeholder: Consolidated Breweries Plc. held 57% equity stake in

Champion Breweries Plc prior to 23rd of August, 2013. This was however
transferred to Raysun Nigeria Limited, a wholly owned subsidiary of Heineken B
V (Heineken), in a bid to provide CHAMPION with its financing and
restructuring requirements. According to the management of CONSBREW,
Champion Breweries has recorded losses over the years, and has relied on
financing from Consolidated Breweries in the form of intercompany debt.
Recapitalizing: In line with the above, the company is currently in the process of
recapitalizing by way of NGN12bn right issue to finance its huge financial
obligation and to optimize its operating capacity. This was issued at a significant
discount of NGN1.85 per share compared to a market price of NGN13.79.
Performance: As seen in its 2013FY result, the company grew its revenue by
25.09% (NGN2.233bn from NGN1.78bn). CHAMPION operates with a very high
Cost to Sales margin of 98.84% compared to industry average 53%. Its bottom
line was also pressured by a 67.86% increase in financial charges as highlighted
above, pegging loss for the year at (NGN1.178bn).
49
Nigeria
July 2014
Outlook: We think Heinekens recent interest in Champion breweries Plc. and

the move to recapitalize the company is a great development. This opinion
arose from the level of expertise with which the global brewer is expected to
put into the operations and management of the company as seen in Nigerian
breweries and Consolidated Breweries Plc. According to the management of the
company, CHAMPION has entered into a long term contract with Nigeria
Breweries Plc. in respect of contract production and this is expected to drive
revenue going forward. We see a significant potential for growth in Champion
Breweries post recapitalization and restructuring.
6.5.2 Jos Int. Breweries Plc.
Company Profile: Jos International Breweries Plc. (JOSBREW) started operations

in 1975 following a three-party investment agreement signed among the
Plateau State government, the Danish firm of A/S Cerekem International Limited
and the Industrialization Fund for Development Countries (IFU). JOSBREW
product portfolio includes Rock lager beer and Malt Royale. In terms of market
capitalization, the beer maker is currently worth NGN1.44bn at NGN2.58 per
share making the company the 5th biggest player in the sector by market
capitalization.
Performance: JOSBREW has not released earnings results since 2009; NSE Xcompliance report listed the company as one of the audited accounts defaulters
having failed to file its 2010 audited financial statement. In 2013 the company
was bailed out of its debt worth NGN700bn owed to Diamond bank by the
Plateau state government in other to revive the operations of the company.
Share price rallied 900% (NGN0.90 to NGN9.00) in 2013 following this
announcement.
Restructuring: JOSBREW plans to approach the Bank of Industry (BOI) for a loan
credit worth of NGN2bn. According to management, this is to revive the
operations of the firm following its debt settlement.
Outlook: Though we strongly believe that recent move by the management of

the company to bring the operations of the Brewing plant back to full capacity is
commendable, the non-availability of information on the performance of the
company however does not give room for the possibility of a clear
understanding of the prospect of the company.
50
Nigeria
July 2014
6.5.3 Premier Breweries Plc.
The Company was incorporated in 1976 and subsequently listed on the floor of
the NSE in 1988. It is located in Onitsha, Anambra State and was incorporated
for the purpose of brewing alcoholic products. The company has in the past,
made various efforts to raise capital base for the purpose of reactivating its
operations to start production, upgrade existing storage facilities and

provide efficient working capital.
6.5.4 Golden Guinea Breweries. Plc
Golden Guinea Breweries Plc was incorporated in September 1962 and

subsequently listed in 1979. Located in Aba, the Company is engaged in the
brewing, bottling and marketing of Golden Guinea lager beer and Eagle Stout, as
well as the production and marketing of Bergedorf premium lager beer and
Bergedorf Malta under a franchise from Holsten Brauerei AG of Hamburg.
According to the Abia State Government, Golden Guinea Brew has a problem
bothering on finance; as a result the company is currently non-operational.
6.6 Non-Quoted Brewer: Consolidated Breweries Plc
Company Profile: Consolidated Breweries Plc (CONSBREW), a subsidiary of

Heineken N.V, the global brewing giant (became a majority shareholder in
2005). CONSBREW is the third largest brewery in Nigeria the beer maker
produces quality brands such as 33 Export Lager Beer, Turbo King Dark Ale,
Williams dark ale, Hi-Malt Non Alcoholic Malt Drink and Maltex (acquired a
majority shareholding in DIL/Maltex Nigeria Plc in 2009) Non Alcoholic Malt
Drink. These brands have wide distribution networks, and have great consumer
following across Nigeria.
Exhibit 37: Brand Portfolio
51
Nigeria
July 2014
Brewing plants: CONSBREW currently operates four different brewing plants.

These include H/office located at Iddo House, Iddo, Lagos; other breweries are
located in Ijebu-Ode in Ogun State, Awo-Omamma in Imo State and Makurdi in
Benue State. We note that the current expansion to Makurdi and Uyo result
from the strategic acquisition of Sona Breweries by the Heineken Global group
in 2010. An acquisition that saw the takeover of the five brewing plants of Sona
breweries in Ota, Kaduna, Onitsha (Nigerian Breweries) and the aforementioned
two for CONSBREW.
Strategic focus: CONSBREW is HEINEKENS strategic route into the savings/value

segment of the Nigerian brewing and malting market. This was on the back of
the fact that the global beer maker needs to register its presence among 61% of
the market in the lower end segment which is curently driving growth, who live
on less than USD1 per day and will require to work 2 hours a day to buy a bottle
of beer. The affordability of the product portfolio of CONSBREW is therefore a
key strategic thrust of the operations of the beer maker.
Ownerhip structure and product portfolio: Heineken Group holds 53.5% of the
shares of the company, 10.6% is held by Odutola Holdings, while the remaining
35.9% is held by other shareholders. The brand portfolio of the craftbrewer
include 33 export which takes c.50% of the volume share of the company,
Turbo king, Williams, Hi-malt and Maltex. The overall feature of the portfolio is
their pocket friendly price and premium quality.
Performance: The company recorded a five year revenue growth of c.350%

between 2005 and 2012. Turnover expanded 1.15% as at 2013FY while PBT and
PAT declined 58.60% and 55.33% respectively. CONSBREW now functions in 4
entities Vs. 1 in 2009 (DIL/MALTEX,Champion,bbl and consolidated), operates 5
plants, 14 KSUs and maintains a man power base of 1400 workers.
Outlook: Heineken has filed a proposal to merge the operations of CONSBREW
with that of Nigeria Breweries, with the global company retaining majority
interest in both companies. Both entities are expected to exist as Nigerian
Breweries post the merger. According Heineken, the consolidation is a strategic
initiative to position the global beer maker for full optimization of the
opportunities in the Nigerian brewing space
52
Nigeria
Exhibit 38: Shareholding Structure
July 2014
Route to the Market
5000 Bulk
Breakers
Others
36%
Heineken
54%
Odutola
holdings
11%
Bars
Retail outlets
CONSBREW
29 Depot
700
Independent
Distributors
Consumer
Source: Heineken.
6.6 Concluding Highlights
We think the long-term prospects for growth

Nigerian beer market.
We are bullish on Nigerian Breweries as we expect the proposed merger

between Nigerian Breweries and Consolidated breweries to reinforce the longterm potential for huge returns on investment in the company.
Though we are modest on the 12 month performance outlook for GUINNESS,

we believe the beer maker will continue to leverage on innovation to shove up
its slowing top-line performance.
SABM is expected to further expand its presence in Nigeria with an attempt into
the premium segment (Castel may be introduced to raise competition), while
intensifying its competitive presence in the value segment. Consequent on this,
growth outlook for INTBREW remains attractive.
Heineken will evetually consolidate its entire holding into NB given recent
proposed merger. Hence, Champion breweries may be integrated in no distant
time.
remain compelling in
the
53
Nigeria
July 2014
Champion Breweries offers the highest potential for returns amongst the small
cap brewers.
We anticipate the possibility of acquisitions of other inoperative listed beer

makers though there are no grounds for this at the moment.
Cassava beer and other spent beer making inputs offer other opportunities for
investors in the beer production value chain.
54
Nigeria
July 2014
APPENDIX 1: NIGERIAN BREWERIES FINANCIALS IN THOUSANDS NGN (HISTORICAL+FORECAST)

Balance Sheet
2011
2012
2013
2014
2015
2016
98,428,278
142,348,420
153,366,133
154,908,029
165,747,971
176,937,887
BALANCE SHEET
Non-current Assets
Fixed Assets
Investments (at cost)
150000
150000
150,000
108,196
115,767
123,583
Intangible Asset
Long-term loans
receivable
deferred charges and
trademarks
54367019
53987573
53563357
54,036,994
57,818,321
60,109,561
191446
148700
158,884
667,717
714,442
762,675
132309
235,790
153,136,743
196,767,002
207,474,164
209,720,936
224,396,501
237,933,705
27,533,033
24,652,723
20,643,153
27,041,436
28,933,705
30,887,067
12,692,298
19,929,893
14,212,062
18,454,134
11,082,706
13,443,087
902,910
764,588
3,238,495
3,465,114
3,699,050
Total Fixed Asset

Stocks and work-inprogress
Debtors
Due from related
companies
Other Assets
Cash at Bank and in hand
21,876,465
9,514,205
9528848
10606072.34
20011035.56
21362013.14
1,133,415
1,866,896
136,818
813,541
870,469
929,236
63,235,211
56,866,627
45,285,469
60,153,678
64,363,030
70,320,453
216,371,954
253,633,629
252,759,633
269,874,614
288,759,532
308,254,158
Trade creditors
61,692,692
69,832,649
47,889,259
41,469,964
11,808,970
Other Creditors
Due to related
companies
47,554,919
12,685,050
4,832,471
18,539,140
Taxation
-18347122
9453205
-17581652
22688113.3
-19159968
34032169.94
-22274775.98
39096461.88
-24099870.53
43206785.25
-26344170.97
48256662.38
72,207,575
86,834,468
100,295,715
94,875,373
83,003,771
69,527,213
Long-term loan
38,000,000
45,000,000
9,000,000
18,742,844
25,405,218
31,449,278
Deferred Tax
21,231,638
22,384,550
21,830,000
16,192,477
17,325,572
18,495,249
6,866,570
5,966,719
9,274,733
5,397,492
5,775,191
6,165,083
Deposits for imports

Total Current Asset
TOTAL ASSET
LIABILITIES
Current Liabilities
Dividend
Short-term Liabilities
Creditors: amount falling
due after 1-yr
Staff Pension / Gratuity

Deferred Income
Total non-current
Liabilities
Total Liabilities
Net Assets
11912614.23
22976072.65
35374365.69
66,098,208
73,351,269
40,104,733
52,245,427
71,482,054
91,483,977
138,305,783
160,185,737
140,400,448
147,120,800
154,485,824
161,011,190
78,066,171
93,447,892
112,359,185
122,753,814
134,241,261
147,071,325
55
Nigeria
July 2014
Income Statement
2011
2012
2013
2014F
2015F
2016F
230,123,215
252,674,213
268,613,518
287,416,464
308,972,699
331,373,220
Cost of sales
-120,361,199
-127,222,069
-132,136,476
-141,552,609
-151,396,623
-161,544,445
Gross Profit
109,762,016
125,452,144
136,477,042
145,863,856
157,576,077
169,828,775
-53,459,431
-63,520,376
-69,381,076
-67,516,152
-72,386,239
-75,571,589
56,647,710
63,932,031
69,171,377
78,922,537
85,807,782
94,919,932
795,296
INCOME STATEMENT
Turnover
Total OPEX
Interest Income
Interest Expense
Net Interest Earnings
Profit before tax
Taxation
Profit after taxation
1,329,159
559,842
551,250
603,575
710,637
-1,604,177
-8,867,507
-7,482,310
-7,760,245
-7,724,317.477
-275,018
-8,307,665
-6,931,060
-7,156,670
-7,013,680.269
56,372,692.00
55,624,366.00
62,240,317.00
71,765,867.07
78,794,102.22
87,430,897.45
-18,347,122
-17,581,652
-19,159,968
-22,274,776
-24,099,871
-26,344,171
38,025,570.00
38,042,714.00
43,080,349.00
49,491,091.09
54,694,231.69
61,086,726.47
-8,284,330.494
-7,489,034.767
56
Nigeria
July 2014
APPENDIX 2: GUINNESS NIG. PLC FINANCIALS IN THOUSANDS NGN (HISTORICAL+FORECAST)

Balance Sheet
2011
2012
2013
2014e
2015f
2016f
46,098,557
774000
1031280
675476
76,293,851
0
679792
0
88,112,852
0
578771
31,611
83,714,714
121,331
1,112,226
648,237
86,238,731
124,645
1,142,603
665,942
86,034,856
128,933
1,181,915
688,854
48,579,313
77,231,484
88,822,002
85,596,508
88,171,920
88,034,559
Stocks and work-in-progress

Debtors
Due from related companies
Other Assets
17,433,924
18,133,997
0
0
8,080,590
13,193,762
10,812,267
0
0
4,772,154
12,400,102
16,649,278
0
0
3189239
24,175,130
12,307,644
0
6701929.869
16676499.95
24,835,391
12,643,785
0
6947094.702
17131961.14
25,689,876
13,078,806
0
6641628.182
17721402.38
Total Current Asset
43,648,511
28,778,183
32,238,619
59,861,204
61,558,232
63,131,713
TOTAL ASSET
92,227,824
106,009,667
121,060,621
115,660,008
118,818,863
122,906,938
0
0
26,342,948
0
0
0
0
31,808,962
8,201,394
0
0
0
34,920,097
12,304,644
0
3,088,442
-11,988,689
32,465,764
5,092,873
0
3,172,792
-11,887,120
33,352,455
13,457,218
0
3,281,955
-11,812,895
34,499,977
18,254,090
0
BALANCE SHEET
Non-current Assets
Fixed Assets
Intangible Asset
Long-term loans receivable
deferred charges and
trademarks
Total Fixed Asset
LIABILITIES
Current Liabilities
Creditors: Amt falling due
within 1-yr
Bank Overdraft
Short-term Loans
Trade creditors
Other Creditors
Due to related companies
6660536.019 7375742.713 7545974.691

11799404.15 10541217.32 12030593.18 13322435.28 13629916.79
-6168538
-5145149
36,588,640
45,199,537
51,275,097
35,574,325
46,388,353
52,801,464
0
10,282,960
3,739,799
8,513,058
10,902,749
2,782,809
8,796,183
11,955,673
2,994,557
6,939,600
16,453,977
5,218,870
5,940,943
7,213,476
5,361,405
4,916,278
5,064,991
3,687,208
Total Liabilities
51,944,332
67,398,153
75,021,510
67,497,851
68,305,688
69,988,484
Net Assets
40,283,492
38,611,514
46,039,111
48,162,157
50,513,175
52,918,454
Taxation
-8249032
Dividend
12168135.53
Creditors: amount falling due
after 1-yr
Long-term loan
Deferred Tax
Deferred Income
0 189236.2287 194404.5649 201093.2368
57
Nigeria
July 2014
Income Statement
2011
2012
2013
2014e
2015f
2016f
Turnover
123,663,125
116,461,882
122,463,538
114,503,408
118,224,769
124,136,007
Cost of sales
-68,619,520
-61,278,681
-66,385,104
-60,686,806
-62,068,004
-65,171,404
Gross Profit
55,043,605
55,183,201
56,078,434
53,816,602
56,156,765
58,964,603
Total OPEX
-29,315,098
-34,035,655
-36,279,600
-33,517,692
-34,821,828
-36,190,317
26,538,501
21,895,799
20,614,339
21,100,434
22,162,510
23,394,967
Interest Expense
203,315
-564,850
580,822
-2,093,463
201,185
-3,806,649
1,832,055
-2,118,313
2,955,619
-2,068,933.454
-2,048,244.119
-361,535
-1,512,641
-3,605,464
-286,259
886,685.766
186,204.011
26,176,966.00
-8,249,032
20,383,158.00
-6,168,538
17,008,875.00
-5,145,149
20,814,175.06
-6,660,536
23,049,195.98
-7,375,743
23,581,170.91
-7,545,975
17,927,934.00
14,214,620.00
11,863,726.00
14,153,639.04
15,673,453.27
16,035,196.22
INCOME STATEMENT
Interest Income
Profit on ordinary activities b4

tax
Taxation
Profit after taxation (PAT)
2,234,448
58
Nigeria
July 2014
APPENDIX 3: INTERNATIONAL BREWERIES PLC. FINANCIALS IN THOUSANDS NGN (HISTORICAL+FORECAST)

Balance Sheet
BALANCE SHEET
Non-current Assets
7,323,499
Fixed Assets
Intangible Asset
9,662,962
15,496,354
18,677,771
19,696,011
9,200,374
1000
1000
1,000
1,000
1,049
1,049
21060
33020
24765
22,444
30,695
25,579
10,076,491
11,234,860
16,412,444
18,795,469
19,871,118
9,370,365
1,741,257
1,636,459
2,439,885
2,236,649
2,174,235
2,148,656
Long-term loans receivable

Deferred charges and trademarks
Total Fixed Asset
Stocks and work-in-progress
489,002
1,098,644
3,142,040
2,945,043
3,197,404
3,064,392
Due from related companies
Other Assets
209,283
318,349
1042393
393379
562743.1701
639480.8752
2,439,542
3,053,452
6,624,318
5,575,071
5,934,383
5,852,529
12,516,033
14,288,312
23,036,762
24,370,540
25,579,235
11,795,351
658,320
136,149
2,421,689
771,856
1,087,117
501,302
Trade creditors
1,672,593
9,971,271
5,327,074
5,297,015
5,627,432
2,712,931
Other Creditors
3,178
17,820
79,335
127,896
117,954
Due to related companies
Taxation
-2363229
-1228204
-1819998
-1365800.184
-1448993.784
Dividend
815631.6075
1044008.458
1451162.695
1539555.895
2,342,470
10,153,591
7,854,517
6,604,447
7,354,030
3,579,889
7,338,030
39,642
3,789,474
3,854,913
3,836,885
1,533,396
Debtors

Total Current Asset
TOTAL ASSET
LIABILITIES
Current Liabilities
Creditors: Amt falling due within 1yr
Bank Overdraft
Short-term Loans
Creditors: amount falling due after
1-yr
Long-term loan
1,167,817
1,749,928
2,322,550
2,015,644
929,474
257,671
220,614
257,852
318,707
386,246
178,110
2156329.511
994348.1056
Total Liabilities
9,999,353
12,704,989
13,656,589
13,100,617
16,176,308
7,412,199
Net Assets
2,516,680
1,583,323
9,380,173
11,269,923
12,721,086
14,260,642
Deferred Tax
Deferred Income
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Income Statement
2011
12/2013
2014
2015f
2016f
2017f
Turnover
4,794,000
9,908,167
17,388,632
Cost of sales
-3,030,000
-6,785,005
-9,687,402
-9,591,273
-10,241,926
-10,856,441
Gross Profit
1,764,000
3,123,162
7,701,230
8,902,634
9,454,085
10,021,330
Total OPEX
-1,494,000
-2,715,302
-4,287,154
-3,905,378
-4,614,775
-4,678,992
278,928
719,903
3,444,197
5,011,222
4,859,006
5,363,216
INCOME STATEMENT

Interest Income
23,669
308,974
18,493,907
41,620
19,696,011
98,480
20,877,772
104,389
Interest Expense
-79,431
-65,685
-18,477
-1,009,527
-689,360.383
-939,499.723
-79,431
-42,016
290,497
-967,907
-590,880.329
-835,110.864
199,497.00
677,887.00
3,734,694.00
3,925,500.00
4,268,125.57
4,528,105.57
-2,363,229
-1,228,204
-1,819,998
-1,365,800
-1,448,994
Profit on ordinary activities b4

tax
Taxation
Profit after taxation (PAT)
199,497.00
(1,685,342.00)
2,506,490.00
2,105,502.00
2,902,325.39
3,079,111.79
60
Nigeria
July 2014
Analysts Certification and Disclaimer

This research report has been prepared by the research analyst(s), whose name(s) appear(s) on the cover of this report. Each
research analyst hereby certifies, with respect to each security or issuer covers in this research that:
(1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or
issuers (the Issuer); and
(2) no part of any of the research analysts compensation was, is, or will be directly or indirectly related to the specific
recommendations or views expressed by the research analyst(s) in this report. Research analysts compensation is determined
based upon activities and services intended to benefit the investor clients of Meristem Securities Limited (the Firm). Like all of the
Firms employees, research analysts receive compensation that is impacted by overall Firm profitability, which includes revenues
from other business units within the Firm.
(3) each research analyst and/or persons connected with any research analyst may have interacted with sales and trading personnel,
or similar, for the purpose of gathering, synthesizing and interpreting non-material non-public or material public market
information.
As at the date of this report, any ratings, forecasts, estimates, opinions or views herein constitute a judgment, and are not connected
to research analysts compensations. In the case of non-currency of the date of this report, the views and contents may not reflect
the research analysts current thinking. This document has been produced independently of the Issuer. While all reasonable care
has been taken to ensure that the facts stated herein are accurate and that the ratings, forecasts, estimates, opinions and views
contained herein are fair and reasonable, neither the research analysts, the Issuer, nor any of its directors, officers or employees,
shall be in any way responsible for the contents hereof, and no reliance should be placed on the accuracy, fairness or completeness
of the information contained in this document. No person accepts any liability whatsoever for any loss howsoever arising from any
use of this document or its contents or otherwise arising in connection therewith.
Analysts Compensation: The equity research analysts responsible for the preparation of this report receive compensation based
upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm
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Investment Ratings
Fair Value Estimate
We estimate stocks fair value by computing a weighted average of projected prices derived from discounted cash flow and relative
valuation methodologies. The choice of relative valuation methodology (ies) usually depends on the firms peculiar business model
and what in the opinion of our analyst is considered as a key driver of the stocks value from a firm specific as well as an industry
perspective. However, we attach the most weight to discounted cash flow valuation methodology.
Ratings Specification
BUY:
Fair value of the stock is above the current market price by at least 20 percent
HOLD:
Fair value of the stock ranges between -10 percent and 20 percent from the current market price.
SELL:
Fair value of the stock is more than 10 percent below the current market price.
Definitions
Price Targets: Price targets reflect in part the analysts estimates for the companys earnings. The achievement of any price target
may be impeded by general market and macroeconomic trends, and by other risks related to the company or market, and may not
occur if the companys earnings fall short of estimates.
Asset allocation: The recommended weighting for equities, cash and fixed income instrument is based on a number of metrics and
does not relate to a particular size change in one variable.
61
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July 2014
Movements in Price Target

Ticker
NB
GUINNESS
INTBREW
Last Review
Date
22/07/2014
26/02/2014
23/07/2014
Price
(N)
177.09
200
28.05
Previous
Target Price(N)
156.11
199.2
15.92
New Target
Price (N)
169.12
199.2
21.22
Previous
Recommendation
HOLD
HOLD
SELL
New
Recommendation
HOLD
HOLD
SELL
Company disclosures
Meristem or the analyst(s) responsible for the coverage may have financial or beneficial interest in securities or related investments
discussed in this report, which could, unintentionally, affect the objectivity of this report. Material interests, which Meristem or the
analyst(s) have with companies or in securities discussed in this report, are disclosed below:
Company
Disclosure

a.
b.
c.
d.
The analyst(s) hold(s) personal positions (directly or indirectly) in a class of the common equity securities of the company.
The analyst responsible for this report, as indicated on the front page, is a board member, officer or director of the company
Meristem beneficially owns 1% or more of the equity securities of the company
Meristem has been the lead manager or co-lead manager of any publicly disclosed offer of securities of the company over the
past 12 months.
e. Meristem beneficially holds a major interest in the debt of the company
f. Meristem has received compensation for investment banking activities from the company within the last 12 months
g. Meristem intends to seek, or anticipates receipt of compensation for investment banking services from the company in the next
3 months
h. The content of this research report has been communicated with the company, following which this research has been
materially amended before its distribution
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j.
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l.
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m. Meristem has other financial or other material interest in the company.
Conflict of Interest
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July 2014
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Glossary
Abbreviation
BRICS
BVPS
C.
CAPEX
CAGR
CAR
CIT
CSD
CKD
CNG
COE
COT
CPI
CPO
CRR
DCF
DDM
DPS
DISCOS
D/Y
EBIT
ECA
EEG
EIA
EIU
ETLS
EM-LCI
EPS
EU
FDI
FEC
FED
FFB
FGN
FIRS
FMCG
FMF
FPI
FTAN
FY
GBI-EM
GCI
GDP
GDR
GE
GENCOS
GMP
GPE
GPW
H1
H2
HL
SABM
Definition
Brazil, Russia, India, China and South Africa
Book Value per Share
Close to
Capital Expenditure
Compounded Annual Growth Rate
Capital Adequacy Ratio
Company and other Income Tax
Carbonated Soft Drink
Completely Knocked Down
Compressed Natural Gas
Cost of Equity
Commission on Turnover
Consumer Price Index
Crude Palm Oil
Cash Reserve Ratio
Discounted Cash Flow
Dividend Discount Model
Dividend Per Share
Distribution Companies
Dividend Yield
Earnings before interest and tax
Excess Crude Account
ECOWAS Expansion Grant Scheme
Energy Information Administration
Economist Intelligence Unit
ECOWAS Trade Liberalization Scheme
Emerging Markets local currency index
Earnings per Share
European Union
Foreign Direct Investment
Federal Executive Council
Federal Reserve
Fresh Fruit Bunches
Federal Government of Nigeria
Federal Inland Revenue Service
Fast Moving Consumer Goods
Federal Ministry of Finance
Foreign Portfolio Investment
Federation of Tourism Associations
Full Year
Global Bond Index Emerging Market
Global Competitiveness Index
Gross Domestic Product
Global Depository Receipts
General Electric
Generation Companies
good manufacturing practice
Gross Premium Earned
gross premium written
First Half
Second Half
Hectoliters
South African Breweries and Millers PLC/ SABMiller
Abbreviation
IFC
IFRS
IMF
IOC
IPP
LTD
M1
M2
M&A
MBPD
MCAP
MDRI
MENAP
MHL
MIC
MIRS
MMT
MMTPA
MOU
MPC
MPR
MRQ
MSCI
MTEF
MYTO
NAICOM
NBS
NDA
NFA
NGL
NGN
NGO
NHA
NIBOR
NIPP
NNPC
NPC
NPE
NPL
NSE
NSEBNK
NTDC
OECD
OPEC
OPEX
OTC
PAT
P/B
P/E
PBB
PBT
PIB
Definition
International Finance corporation
International Financial Reporting Standard
International Monetary Fund
International Oil Company
Independent Power Producer
Loan to Deposit
Narrow Money
Broad Money
Mergers and Acquisition
Million barrels per day
Market Capitalization
Market Development and Restructuring Initiative
Middle East, North Africa, Afghanistan and Pakistan
Million Hecto Liters
Middle Income Country
Minimum Interest Rate on Savings
Million Metric Tonne
Million Metric Tonne Per Annum
Memorandum of Understanding
Monetary Policy Committee
Monetary Policy Rate
Most Recent Quarter
Morgan Stanley Capital International
Medium Term Expenditure Framework
Multi-Year Tariff Order
National Insurance Commission
Nigeria Bureau of Statistics
Net Domestic Asset
Net Foreign Assets
Natural Gas Liquids
Naira
Non-government organization
Nigeria Hotel Association
Nigeria Interbank Offer Rate
National Integrated Power Project
Nigerian National Petroleum Corporation
National Population Commission
Net Premium Earned
Non-Performing Loan
Nigerian Stock Exchange
Nigerian Stock Exchange Bank
Nigerian Tourism Development Corporation
Organization for Economic Cooperation and Development
Organization of Petroleum Exporting Countries
Operating Expense
Over the Counter
Profit After Tax
Price to Book Value
Price to Earnings Ratio
Personal and Business Banking
Profit before tax
Petroleum Industry Bill
66
Nigeria
Abbreviation
PMI
POME
PPP
PPT
Q1
Q2
Q3
Q4
QE
Q-o-Q
RER
R&D
RDAS
RIM
RIR
ROAA
ROAE
RTDs
ROE
SAP
SHF
Definition
Purchasing Managers Indices
Palm Oil Mill Effluent
Purchasing Power Parity
Petroleum Profit Tax
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Quantitative Easing
Quarter on Quarter
Real Exchange Rate
Research and Development
Retail Dutch Auction System
Residual Income Model
Real Positive Interest Rate
Return on Average ASSET
Return on Average Equity
Ready-to-Drinks
Return on Equity
Structural Adjusted Program
Shareholders Fund
Abbreviation
SKD
SME
SON
SRW
SSA
TCN
TELECOS
TP
UNICEF
UK
US
USAID
USD
VAT
WAMA
WAMZ
WDAS
WHO
YTD
Y-o-Y
July 2014
Definition
Semi- Knocked Down
Small and Medium Scale Enterprise
Standard Organization of Nigeria
Soft Red Winter
Sub-Saharan Africa
Transmission Company of Nigeria
Telecommunication Companies
Target Price
United Nations children Emergency Fund
United Kingdom
United States of America
United states Agency for International Development
United States Dollars
Value Added Tax
West Africa Monetary Agency
West Africa Monetary Zone
Wholesale Dutch Auction system
World Health Organisation
Year to Date
Year on Year
67

2014 Breweries Sector Report

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Nigeria

Brewing Sector Report

Breweries Sector Report 2014

Unearthing the compelling growth potentials

Equity Research | www.meristemng.com | July 2014

Brewing Sector Report

Equity Research | www.meristemng.com | July 2014

Brewing Sector Report

1. Brewing in the Global Space

Industry Consolidation shaping the global market dynamics

Global beer market outlook

2. The African Brewing Market

Eye Catching Growth Story

Competitive Landscape in Africa

Prospect For Growth Remain Strong

3. The Nigerian Brewery Sector Overview

Structure of the Nigerian Beer market

Market Share: A terrain of two dominant players

Beer consumption: Nigerians drink-less compared to peers

Key Growth drivers: The demographic dividend fulcrum

Major Challenges: Discretionary spending softens

Five Competitive Forces Shaping the Beer Industry In Nigeria

Financial Ratio analysis

Where do we see the beer market going forward?

Beer Making Inputs

5. Industry Prospect and Valuation

The Nigerian Beverage Market

4. Value Chain Analysis

Nigerian Breweries Plc.

Route to the Market

Equity Research | www.meristemng.com | July 2014

Brewing Sector Report

Guinness Nigeria Plc.

Route to the Market

International Breweries Plc.

Route to the Market

Performance and outlook

Other Listed Beer Makers

Champion Breweries plc.

Jos Int. Breweries Plc.

Premier Breweries Plc.

Golden Guinea Breweries. Plc.

Non-Quoted Brewer: Consolidated Breweries Plc.

Equity Research | www.meristemng.com | July 2014

Brewing Sector Report

Brewing in the Global Space

Despite the effect of global economic crunch on discretionary spending and by

Global Beer Production (Mhl) by Region 2013

Source: Barth Report 2013

Though the global growth in the industry is expected to be driven by the

Equity Research | www.meristemng.com | July 2014

Brewing Sector Report

Exhibit2: Global Beer production by Brewers

Global Beer Production by Country

Source: Barth Report 2013

When considered globally, an obvious feature is the dominance of global

1.2 Industry Consolidation shaping the global market

ABInBev, SABMiller, Heineken

Industry consolidation is perhaps the most noteworthy feature in the global

In 2013, ABInBev completed the acquisition of Mexican brewer, Grupo Modelo.

Equity Research | www.meristemng.com | July 2014

Brewing Sector Report

Exhibit3: Industry Consolidation in the Global Brewing Space