Nigerian Breweries profit rises on reduced interest expense, higher pricing

Nigerian Breweries Plc, the local unit of Heineken NV, reported a 9.56 percent increase in first quarter profit, helped by a reduction in interest expense and increase in the price of key products.

Net income rose to N11.45 billion from N10.45 billion a year earlier, the company said in a statement on Friday.  Earnings Before Interest Taxation, Amortization and Depreciation (EBITDA) increased by 20.60 percent to N30.20 billion.

Sales moved by 17.70 percent to N91.28 billion as increase in the driven by strong performance of the economy brands, such as Life and Goldberg and volumes.

“Although we believe that the double-digit y/y growth on the top line was driven by a combination of higher pricing and volume growth, given average price increases of around 12% implemented by NB in 2016, we believe that the pricing impact was more pronounced,” said Tunde Abidoye, equity research analyst with FBNQuest in an emailed note to BusinessDay.

Nigerian Breweries bottom line (profit) got a boost from a 40.78 percent reduction in interest on borrowings to N1.81 billion.

Interest coverage ratio in the period under review stood at 10.91 times, which is lower than the 1.5 times threshold. This means the company’s operating profit can cover interest expense 19 times.

Nigeria Breweries had in March announced that it was giving shareholders the option of taking new shares in lieu of cash dividend, so that it can reduce interest expense on borrowing and fund working capital.

Total debt in the company’s in the balance sheet stood at N6 billion, a reduction of 64.70 percent from last year’s figure of N17 billion.

The consumer goods giant is in need of cash in order to take on more projects as cash and cash equivalent fell by 46.97 percent to N6.97 billion.

Nigerian companies are going through a torrid period brought on by lower oil price that tipped the economy in its first recession in 25 years, a dollar shortage, currency devaluation and a weak external reserve.

Firms like Flour Mills Nigeria Plc, Guinness Nigeria Plc and Unilever Nigeria Plc have issued a combined right issue of N143 billion in order to raise money to clear a backlog of dollar denominated debt owed to suppliers and fund capital projects.

Analysts say short term obligation remains a big threat to consumer goods firms as another round of devaluation could balloon short term debt.

Nigerian Breweries has total trade and other account payables otherwise known as creditors of N111.11 billion as at March 2016.

Analysts at CSL Research Limited are of the view that inflationary pressures will continue to weigh heavily on consumer spending while higher input costs that cannot be passed on to consumers will tighten their squeeze on manufacturers margins.

“High levels of competition from established players and, increasingly from cheaper, unbranded substitutes, will limit firms’ abilities to pass on higher input costs to consumers, meaning that margins are likely to be squeezed further in the coming years,’’ said analysts at CSL Research.

Nigerian Breweries shares closed at N120 as of Monday while market capitalization stood at N952.36 billion.

BALA AUGIE