GCR Upgrades Nigerian Breweries’ Ratings Outlook
After two years of net losses, GCR Ratings has affirmed the national scale long-term and short-term issuer ratings of AA (NG) and A1+(NG), respectively, accorded to Nigerian Breweries Plc, with the outlook revised to stable from evolving.
The African-focused ratings agency highlighted that the ratings of Nigerian Breweries Plc reflect the company’s leading market position that has enabled strong growth and a return to profitability after two consecutive years of net losses. Following the successful rights issue of N548.9 billion, Nigerian Breweries has evidenced much lower debt, underpinning an improvement in leverage metrics.
The ratings are, however, balanced against weak operating cash flows (OCF) due to sustained high working capital pressures, with persistent recourse to short-term loans amid elevated lending rates that continue to constrain the liquidity profile. GCR said the stable outlook reflects the expectation that the group will continue to benefit from its affiliation with Heineken N.V. Group (Heineken).
NB’s competitive assessment remains a key rating support, driven by its well-entrenched position as Nigeria’s leading beer producer, with over 50% market share and substantial production capacity.
Ratings analysts explained that Nigerian Breweries’ business profile is further strengthened by a robust customer base, wide distribution network, and strategic support from its parent company, Heineken.
The group’s brand portfolio spans various value tiers within the alcoholic and non-alcoholic segments, while its expansion beyond beer, marked by the recent acquisition of Distell Wines and Spirits Nigeria Limited, has increased its product offerings to about 30 brands from 20.
To reduce the high reliance on imported inputs and mitigate the effect of currency risk on profitability, GCR said NB has renewed its focus on local sourcing initiatives and strengthened partnerships with local farmers and suppliers of sorghum as a key raw material.
“We expect these efforts, alongside other ongoing innovations, to support ongoing cost leadership, supply chain security, and business sustainability over the medium term”.
NB has delivered cumulative average annual revenue growth of 33.9% over the five-year review period to 31 December 2024. In 2024, revenue jumped 80.8% to a high of N1.1 trillion, or USD732.6 million, driven primarily by inflation-induced price adjustments and a rebound in volumes.
Ratings analysts stated that the strong progression was sustained into the three-month period ended March 2025 (Q1 2025) as revenue rose by an annualised rate of 41.5% to N383.6 billion, boosted by volume growth in the premium segment.
The company’s earnings before interest, tax, depreciation, and amortisation (EBITDA) margin narrowed to 11.5% in 2024 from 14.9% in 2023, reflecting the impact of heightened foreign currency volatility and the resultant inflationary pressures on inputs and operating costs.
However, price reviews, higher volumes in the premium segment, and a stronger localisation drive supported a significant increase in the EBITDA margin to 26.4% in Q1 2025, according to the rating note.
“Looking ahead, we forecast 25% revenue growth over the outlook period to 2026, supported by higher pricing, with volumes remaining stable”, GCR said.
Ratings analysts noted that while the EBITDA margin is projected to remain sound at around 18% on the back of cost-reflective pricing and ongoing cost-saving initiatives, it is expected to moderate from interim Q1 2025 levels due to the lingering inflationary and foreign exchange pressures.
GCR rating hinted that Nigerian Breweries leverage and capital structure is a constraint to the ratings due to weaker interest coverage and persistently negative operating cash flows, despite a marked reduction in debt in 2024.
The company’s gross debt moderated to N209.1 billion in 2024, according to the rating note, from N341.6 billion in 2023, following the successful N548.9 billion rights issue undertaken to deleverage the balance sheet, reduce foreign currency debt exposure, and enhance the capital structure.
Net interest coverage significantly narrowed to 1.3x in 2024, from 2.5x in 2023, on account of high finance costs arising from previously elevated debt levels and a high-interest rate environment.
GCR Ratings highlighted that NB Plc’s operating cash flow coverage of gross debt remained negative due to weak cash generation and intense working capital absorption. Conversely, net debt to EBITDA significantly improved to 0.5x in 2024 versus 3.4x in 2023 given the reduced debt and sizable cash holding.
The rating note said NB Plc gross debt rose to N235.3 billion in Q1 2025, driven by additional short-term loans obtained for advance payments to suppliers of raw materials as well as advances for cash-backed letters of credit.
The ratings analysts explained that while operating cash flows to debt remained negative, net debt to EBITDA remained below 1x, and net interest coverage strengthened to 6.7x.
Barring further debt accumulation, GCR analysts expect sustained recovery in earnings to support firmer gearing metrics over the next 12 to 18 months. NB’s liquidity assessment is neutral to the ratings, constrained by heightened refinancing risk on account of the substantial short-term debt of N200.2 billion as of 31 March 2025.
“We estimate that the liquidity sources including GCR-forecasted operating cash flows, cash holdings of N93.1 billion as of 31 March 2025, and an unutilised committed facility of N6 billion would barely cover the near-maturing debt obligations and annual replacement capital spending.
“We have included a portion of inventory holdings as potential liquidity support, and the N46 billion ringfenced for imported inputs as of 31 March 2025”. Overall, liquidity uses versus sources coverage is estimated at 1.6x over the 9-month period to 31 December 2025 and 1.1x over the 21-month period to 31 December 2026.
GCR analyst hinted that they have maintained the parental support considerations, anchored on the strategic support from the wider Heineken group over the years, and more recently, demonstrated financial support through a shareholder loan and an equity injection.
Analysts further noted that Heineken Group’s entities have a track record of providing technical support to NB and have been instrumental in input sourcing. NB is 73% owned by Heineken, a significant increase from 57% stake in the brewer in 2023, and the two businesses share some branding.
This notwithstanding, NB’s financial contribution to the ultimate group remains modest, accounting for approximately 2% of its assets and revenue as of 2024. The stable outlook reflects expectations that NB’s strong market position will continue to drive solid growth and sustain the recent earnings recovery, according to GCR Ratings.
“To the extent that this translates into higher internal cash flows, there would be less recourse to debt. We also expect ongoing financial and technical support from Heineken to continue if improvements do not materialise”, ratings analysts stated. Nigerian Exchange Crossed N70trn as Investors Gain N1.04trn
