Adam Smith Awards 2017

HIGHLY COMMENDED WINNER

Best in Class Treasury

Solution in Africa

Nigerian Breweries Plc

Nigeria, West Africa

Sola Ismail, Tax and Treasury Manager

Trade/SCF solution for brewery in Nigeria

Company profile

Nigerian Breweries Plc, the pioneer and largest brewing company in Nigeria was incorporated and has been in operations

in the country for over 70 years. The company has 19 brands, nine operating breweries, two distribution centres, two

malting plants and several sales depots from which the high-quality products are distributed to all parts of Nigeria.

The challenge

Nigerian Breweries was faced with some daunting business

challenges arising from the current macro environment.

Specific issues included:

•

Macroeconomic risk: slow economic growth in 2015 and

recession in 2016 showed evidence that there may be reduced

demand for Nigerian Breweries’ products.

•

FX/devaluation risk: given that some of its raw materials are

imported, Nigerian Breweries Plc was exposed to naira

devaluation risks that adversely affected its margins.

•

Increased cost of production from locally sourced materials.

•

Letters of credit (LC) issuance structures had dried up in the market

as most banks lost LC confirmation lines from correspondent banks.

•

The outright ban on the use of the CBN FX window for the

importation of some packaging materials forced Nigerian

Breweries to use locally available packaging substitutes. This

temporarily increased the strain on production while also

increasing the local currency payable needs of the company.

•

Tightening cash flow situation as a result of the fact that Nigerian

Breweries had to continue to place naira with the CBN for FX

purchase requests. This affected the cash flow of many

corporates that had to leave idle cash with the CBN to have

access to FX when available.

The solution

In light of the challenges described above, Nigerian Breweries

reached out to banking partners to proffer a bespoke, encompassing

solution to address the challenges associated with foreign

procurement (imports) and local purchases that were threatening to

affect the ability of the company to have products on the shelves as

well as remain profitable.

Nigerian Breweries were concerned about mitigating the effects of the

macro-economic conditions on their working capital. Citi were

eventually selected to provide a solution and working with a multi-

functional team were able to provide an end-to end solution that was

implemented throughout the course of 2016.

Core to this solution was a customised deferred, clean LC issuance

structure. This utilises LC confirmation lines from Citi offshore and

allows Nigerian Breweries to issue LCs without necessarily having FX.

This helped the company better plan its foreign purchases as they

knew the value of LCs they could issue at every point in time.

Also, Citi Nigeria issues confirmed deferred LCs to Nigerian

Breweries’ suppliers and leveraged its correspondent bank

relationships to issue and confirm the LCs.

The second key part of the solution is supply chain finance (SCF).

Nigerian Breweries used Citi’s Supplier Finance Solution across their

broad range of local suppliers. This scheme enabled them to

increase the payment terms of all their suppliers in order to manage

tight cash flows more efficiently.

Best practice and innovation

This multi-faceted project has highlighted numerous instances of best

practice and innovation. Most notably, the level of collaboration

between the Nigerian Breweries’ treasury team and Citi was

especially impressive.

Also, Nigerian Breweries developed a methodology to classify raw

materials and spares for allocation of scarce FX. This process helped

ensure the running of the plants, as the company was able to match

the items of import to the deferred LC tenor buckets.

Technology has also been used effectively and Citi’s Supplier Finance

solution is not only innovative but revolutionary in Nigeria, as

traditional supplier finance solutions were manual and offered

quantitative benefits to the vendors but not the buyers.

Key benefits

•

Streamlined processes.

•

Cost savings.

•

Improved working capital.

•

Business sustainability.

•

Improved public image from the corporate social

responsibility viewpoint.

•

Seamless implementation with no disruptive impact on

the company’s activities.

Geoff Gursel, Citi collects the award on behalf of Nigerian Breweries and Meg Coates