Nigeria’s largest brewery by market value, Nigerian Breweries, has recorded its lowest net profit in 7 years since H1 2014 amidst the Covid-19 pandemic which slowed sales of its key products. It would seem however that the company is also reeling from the lengthy decline in consumer purchasing power that started in 2015.
The company has seen reduced revenues and net profit for 3 years in a row now but half-year 2020 is the worst drop so far. This signifies that the company has been struggling and performing rather poorly since H1 2018 with reduced revenue by 4.6% to N172.7 billion in H1 2018 from N180.9 billion in H1 2017.
Similarly, H1 2019 and H1 2020 recorded further 1.4% and 10.8% drop in revenue to N170.2 billion and N151.8 billion respectively. The biggest brewery has also seen its share price crash by 44% to N35.00 in June 2020 from N63.00 in June 2019. The share price has however, improved since then, closing at N42 per share on Friday.
Half-year statistics of Nigerian Breweries for 2018, 2019 and 2020 saw a downward trend of net profit from N23.8 billion in H1 2017 to N18.4, N13.3 and N5.6 billion respectively, indicating 22%, 28% and 58% drop in half-year profits.
In fact, the company only recorded net profit in H1 2017, as all other half-year records show reduced net profit within H1 2014 to H1 2020. Overall, net profit dropped by 21.5% to N5.6bn in 2020 from N23.9bn in 2014 on half-year basis.
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This begs the pertinent question: what has been driving this continuous reduction in revenues and profits of Nigerian Breweries for the past three years?
Whereas revenue has dipped by 10.8% to N151.8bn in H1 2020 from N170.2bn in H1 2019, cost of sales reduced by 5.96% to N92.7bn from N98.5bn within the same period. So, the drop in cost of sales is merely about half of the decline in revenue growth.
From this, it can be said that revenue was declining at a much faster rate than cost of sales, which further depleted profit levels.
Also, profit before tax and profit after tax declined sharply by 57.0% and 58.0% to N8.3bn and N5.6bn respectively in H1’2020.
Vincent Nwani, an investment and business consultant, explained that early in the year, one of the top brewers projected an output of 4 million litres in the first quarter of 2020 but was only able to achieve 600,000 litres in volume, which is a direct consequence of the pandemic and the lockdown.
Nwani further said that consumers’ lifestyle was impacted especially as social activities were on hold, thereby hurting demand and sales volume. He predicted that the situation would linger on into the year.
“Despite easing the lockdown and the gradual resumption of activities, people’s lifestyle and habit have changed. You find out that many people are trying to keep fit and healthy and as a result stay away from alcohol. Consequentially, demand for their product will not be as much as expected as people try to stay safe,” Nwani said.
Akinloye Ayorinde, a consumer goods analyst at CSL research, said the poor financials were driven by the decline in demand caused by the closure of clubs as well as the restriction on social gatherings.
He said despite the excitement of the reopening of bars and clubs, brewers may still face problems as people may not be comfortable sitting in bars or be inclined to resume social activities during a pandemic.
“Going forward, sales in Q3 and Q4 may not be as bad as Q2 but will not be as good as the previous year,” Ayorinde projected.
In line with this, cost margin has been increasing at a positive rate compared to gross margin which has been more of negative growth. This reiterates that cost has been growing faster than revenue as earnings have not been increasing sufficiently to offset rising cost.
At this rate of declining profits due to revenue not being sufficient to cover increasing costs, the recent move of the Nigerian Government to ban packaging and sales of alcohol in small bottles and sachet might further trigger reduced revenue of such brewers.
This is given the issue of affordability as living standards of Nigerians has worsened as indicated by the 2020 National Bureau of Statistics (NBS) report which puts poverty level at 40% of Nigerians (or 82.9 million out of the total populace of about 200 million).
Nigerian Breweries Plc. engages in the brewing and marketing of Lager beer, Stout and non-alcoholic malt drinks and the bottling of the Schweppes range of soft drinks and Crush Orange. The company’s product range includes Star, Gulder, Legend Extra Stout, Maltina and Malta. These products are mainly sold in Nigeria and other neighboring countries.
Nigerian Breweries was incorporated in 1946 and the first bottle of its brand, the STAR Lager, rolled off the bottling lines of its Lagos brewery in June 1949. As the company expanded into other regions, it established more breweries such as Aba Brewery in 1957 and Kaduna Brewery in 1963. By 1971, the company was one of the largest industries within the country in terms of capital investment.
In 1982, another brewery was added in Ibadan. In September 1993, the company acquired its fifth brewery in Enugu, and in October 2003, its sixth brewery, sited at Ameke in Enugu. Ama Brewery began brewing on the 22 March 2003 and at 3 million hectolitres is the largest brewery in Nigeria.
aespite easing the lockdown and the gradual resumption of activities, people’s lifestyle and habit have changed. YOU find OUT THAT many people are TRYING TO KEEP fit and healthy and as a result stay away from alcohol
2020
