Company Analysis

Nigerian Breweries: Lowest profit in 10 yrs


Nigerian Breweries closed the 2018 operations with a lower profit than the company has posted any time since 2008. A drop of over N20 billion in sales revenue was the big event in the company’s operating story in the year. Costs failed to go down with sales revenue, resulting in a record profit drop for the brewing giant.
Except for an improvement in 2017, Nigerian Breweries has been experiencing declining profits since 2014. The company ended the 2018 financial year with an after tax profit of N19.4 billion – only slightly ahead of the half year profit figure of N18.4 billion.
The profit for the year represents a 41% drop year-on-year, measuring just one-half of the company’s profit figure in 2015. Profit margin went down from 9% to 6% over the review period, a sustained decline from close to 16% in 2014.
The company’s management blamed low consumer confidence for lost sales, pointing to the environment conditioned by the run-up to the 2019 general election. It considered the level of growth the economy recorded in the year insufficient to spur consumer demand and sales volume.
The company closed the financial year with sales revenue of N324.4 billion – a year-on-year drop of 6% and just 1% below our projected turnover of N328 billion for the year. This is a reflection of intensifying competition in the brewery industry as well as consumer spending squeeze that is taking spending votes away from brewed products.
As in the preceding year, revenue growth weakened in the second half of the year – confirming a dramatic change in consumer spending behaviour. The company closed the preceding year’s operations with an after tax profit of N33 billion, an increase of 16% over the prior year’s figure. Close to 72% of the 2017 profit was earned in the first half of the year, rising to 95% in 2018.
The drop in profit of nearly seven times ahead of the decline in turnover is explained by inability to keep costs down as sales revenue declined. Input cost was sticky downwards and declined by less than 2% compared to the 6% drop in sales revenue. That widened the rate of drop in gross profit to over 11%, closing at N127 billion at the end of the year.
A further disappointment came from other operating income, which dropped by more than 60% to N885 million at the end of December 2018. The revenue weakness was further reinforced by a 5% increase in marketing/distribution expenses, which were in excess of N70 billion. These developments undermined the company’s profit capacity, resulting in a drop of 35% in operating profit, which stood at slightly below N37 billion at the end of the financial year.
The only major respite in terms of cost behaviour came from a drop of 26% in finance expenses during the year and that saved substantial costs for the company. Net finance cost dropped by 28% to N7.53 billion at the end of December.
The drop in cost of finance reported is despite that balance sheet debts multiplied five times to N42.6 billion during the year. Long- and short-term borrowings were only N8.5 billion at the 2017 close.
Nigerian Breweries earned N2.43 per share at the end of the 2018 operations, down from N4.13 per share in the preceding financial year. As in 2017, the company is again paying out all its earnings in cash dividend.
In addition to its interim dividend of 60 kobo per share paid in the course of last year, the company has announced a final cash dividend of N1.83 per share. The dividend is scheduled for payment on 20th May to shareholders on the company’s register by 6th March 2019.

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