H2 2018 Breweries Outlook – Volume vs Margin

September 12, 2018/InvestmentOne Report

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·         In recent times, the Nigerian brewery sector has witnessed increased competition, which has begun to change the dynamics of the Nigerian beer market. 

·         To remain competitive, players have begun to adopt strategies ranging from pricing to product innovation in a bid to support operating performance. 

·         Most brewers are beginning to increase representation across the various beer segments as the battle for market share intensifies. 

·         While for some, the quest for volume appears to supersede all, for others, margin remains key amidst the need to grow volume. 

·         Unlike the consumer goods space, which saw a mild recovery in volume performance in H1 2018, the brewery segment continued to remain pressured as reflected in the recently released results of players in this space. 

·         We believe the intensified competition in this space, given the growing national presence of International Breweries Plc (IB), with the recently completed US$250million factory in Agbara, Ogun state, and subdued consumer spending may have accounted for the slowed topline growth for Guinness and the less than inspiring topline performance for Nigerian Breweries. 

·         In H2 2018, we expect the recent improvements in government revenues, particularly Federation Account Allocation Committee (FAAC) on the back of higher oil prices (comfortably above US$70 per barrel) to be supportive of consumer demand in H2 2018. Other likely drivers of consumer spending and consequently volume growth include election spending ahead of the 2019 polls and the likelihood of accelerated implementation of the N9.12trillion 2018 budget. However, we are of the view that the implementation of the new excise tax may hinder sector growth, particular premium brands. 

·         Furthermore, while we expect brewers to continue to tame operating expenses as a lever for bottom line performance, we point out the likelihood for a rise in marketing and distribution expenses as brewers may increase promotional activities to drive volume growth amidst competition.    


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