Performance analysis of players in the Nigerian brewery industry

The breweries industry is listed under the consumer goods sector of the Nigerian Stock Exchange (NSE). The beer industry comprises four listed players which are the International Breweries Plc, Golden Guinea Breweries Plc, Guinness Nigeria Plc and Nigeria Breweries Plc.

The figures collated from the financial statements of each player were used in analysing their performances; essentially, as this would help ascertain whether these companies are improving or deteriorating, and also measures the financial standing of the players when compared with the industry average.

Additionally, it is to compare a company to one or more other companies operating in its sector to see how they fare.

Based on the half year 2019 interim results of International Breweries Plc, H1 2019 revenue was up by 29 per cent to N68.6 billion from N53.1 billion in June 2018; cost of goods sold increased by 41 per cent from N31.2 billion in 2018 to N45.4 billion while gross profit grew by 11 per cent from N20.9 billion to NGN23.2 billion.

Cost of goods sold expressed as a percentage of revenue rose from 61 percent in June 2018 to 66 percent in June 2019, meaning that it cost the company more to sell its products during the reference period.

Additionally, profit margin deteriorated further from -5.36 percent to -9.97 percent in June 2019 consequent upon the loss after tax of N6.84 billion in June 2019 as against a loss after tax of N2.85 billion in corresponding period in 2018.

The unaudited third quarter financial statement for Guinness Nigeria Plc for the period ended March 30, 2019 showed a slight decline in revenue by 4 per cent from N105.48 billion in Q3’2018 to N101.4 billion in Q1’2019. When analysed by regions, the decline in sales came primarily from domestic market while the export market witnessed some improvement.

Domestic sales in the nine months ended March 2019 fell to N95.57 billion compared with N99.86 billion in similar period in 2018. On the contrary, export rose to N5.83 billion up from N5.62 billion during the reference period.

During the reference period, the cost of goods sold remained flat at N69.898 billion in Q3 2019 as against N69.898 billion in corresponding period in 2018. Gross profit dipped by 11 per cent from N35.59

billion in Q3’2018 to N31.5 billion in Q3 2019, while gross profit margin fell from 33.7 percent last year March to 31.1 percent same period this year.

Operating profit followed the same path as it fell by 31.3 percent from N10.7 billion to N7.33 billion during the reference period. Profit after tax fell by 16.4 percent to N4.25 billion compared with N5.09 billion in similar period in 2018.

The half year unaudited financial statement of Nigeria Breweries Plc (NB) showed a consistent decrease across all the metrics. Revenue for the period was flat at N170.19 billion as against N172.7 billion the company made in same period in 2018.

But the cost of goods sold witnessed a marginal increase of 2.03 percent from N96.6 billion to N98.5 billion during the period. Essentially, the cost of goods sold to revenue was up to 58 percent from 56 percent in corresponding period in 2018.

Consequently, gross profit declined to N71.7 billion in June 2019 down from N76.1 billion in June 2018. That resulted in a gross profit margin of 42.1 percent in June this year as against 44.1 percent in June 2018. Operating profit was down by 22.6 percent from N31.6 billion to N24.5 billion during the reference period.

Similarly, profit before tax fell to N19.41 billion down from N18.4 billion in corresponding period in 2018.

The brewery industry has been facing a number of challenges which are already weighing on the profitability of players in the sector. The challenges of the breweries industry have been for a while.

After the release of its full year audited report for the period ended December 31, 2018, a leading investment house, United Capital stated as follows:

“After sustaining an average revenue growth of 6.5% over the last five years, NB’S revenue declined in FY-18, despite gradual improvements in the broader economy in 2018.

Revenue growth saw a considerable amount of pressure as the impact of growing competition in the brewery space, limited price increases and strains on consumer wallet took its toll on volume growth.

According to management, while the premium segment of the market continues to expand with Heineken growing by double-digit, the mainstream segment remains under challenge as consumers shift to value brands. Additionally, volume declines impacted fixed cost coverage negatively as Cost-to-sales ratio worsened to 60.9% from 58.4% in FY-17.

Thus, gross income fell by 11.6%y/y to N126.9bn. Notably, due to the Oligopolistic nature of the industry, NB was unable to pass on the full impact of the graduated excise duty to consumers, especially in its mainstream and value segments, as it reversed its initial price increase in Jul-18 due to a refusal of competitors to follow the trend.

“Bottom-line numbers were further pressured by the sharp fall in Other Income by 60.5%y/y, with higher Operating Expenses inching higher by 2.5y/y. The decline in Other Income was traceable to the absence of extra-ordinary income from insurance claims which had boosted 2017 numbers.

Also, increases in personnel cost, one-off cost as a result of rightsizing activities engaged by the company during the year and sales support cost, drove OPEX higher. Meanwhile, Net finance expense reduced significantly as FX losses moderated sharply from N5.0bn in 2017 to N648.9mn in 2018. This was on the back of a sharp decline in its net foreign currency transaction exposure.

Overall, PAT fell by 41.2%y/y to N19.4bn in 2018 and net margin deteriorated by 3.6% to 6.0%. NB maintained a 100% dividend payout ratio observed since 2015 with DPS totalling N2.43/share”, United Capital, one of the leading investment firms in Nigeria stated in a note to stakeholders.