• Wednesday, June 12, 2024
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Nigerian Breweries: H1’16 result reflects challenging economy


At the Nigerian Stock Exchange (NSE) last week, Nigerian Breweries plc released its half-year (H1) 2016 financials.

The H1’16 result which is open to the investing public and regulators shows the brewing giant reported decline in bottom-line figures as shown in the group’s condensed interim income statement for the six-month period ended June 30.

Though revenue rose by 4 percent to N157.373billion from N151.673billion in the corresponding H1 period of 2015, profit before tax (PBT) dropped to N25.548billion from N30.989billion.

Likewise, profit after tax (PAT) dropped to N19.066billion from N21.477billion in H1’15. Nigerian Breweries plc basic earnings per share (EPS) declined to 240kobo in H1’16 from 271kobo in H1’15.

Listed on the consumer goods sector (Beverages-Brewers/Distillers subsector), Nigerian Breweries plc market capitalisation was slightly in excess of N1.055billion with shares outstanding of 7,929,100,888 units. As at Monday the share price lost N0.95 (-0.71%) to close at N133.08. Tunde Abidoye team of analysts at FBNQuest said, “Apart from the weak topline, the negative surprise in net interest expense also contributed to the magnitude of the declines in PBT and PAT.  We believe that the weak topline y/y is reflective of the slowdown in the level of economic activity during the quarter. While Q1 2016 GDP contracted by -0.4%, fuel supply issues, industrial strikes, lower crude oil output, disruptions to gas supply following the vandalisation of pipelines and a reduction in government revenue all combined to constrain demand during the quarter. As such, expectations are that these factors will most likely lead to a more severe contraction in Q2 GDP compared with Q1.”

FBNQuest analysts added: “Moving further down the profit and loss (P&L), we believe that the spike in net interest expense was most likely due to exchange rate losses driven by the movement in the naira exchange rate to c.N282.5 per US dollar following the adoption of a more flexible exchange rate regime compared with $197.0 previously.

“Although we had estimated a 20% hit to PBT, the results show that the impact may have been much more than we had anticipated. Being the first major company to report its Q2 2016 results, NB’s results provide a broad read-across for the earnings expectation for the brewers and consumer goods companies as a whole. The shares have underperformed the index slightly ytd. They are down by -2.2.% ytd compared with the 0.3% ytd return delivered by the index. We rate NB Neutral. Our estimates are under review,” the analysts stated in their first reaction to Nigerian Breweries H1’16 results.

Analysis of the group’s expenses by nature shows raw materials and consumables rose to N51.005billion from N45.277billion in H1’15. Advertising and sales expenses dropped to N10.196billion from N10.844billion. Distribution expense rose to N11.753billion from N10.491billion. The group’s total cost of sales, marketing & distribution and administration expense rose remarkably to N123.716billion from N118.035billion in H1’15.

According to Pabina Yinkere led team of research analysts at Vetiva Capital Management Limited, “Nigerian Breweries reported a modest improvement in revenue for H1’16, growing 4% y/y to N157.4 billion. Looking at the Q2 performance (three month period) however, revenue was down 2% y/y but rose 3% on a quarterly basis, underperforming Vetiva’s estimate by 7%. Notwithstanding, we are satisfied with this run rate from the brewing giant given that the period under review was trailed by several besetting challenges and a tougher operating environment.”

“Whilst we have not seen the brand performance breakdown, we think volumes in the quarter would have struggled with growth, driven by price increase taken in Q1. Gross margin came in at 47% compared to 48% and 49% in Q1’16 and Q2’15 respectively. We believe this is as a result of higher cost of imported raw materials following the naira devaluation,” Vetiva analysts added.

“Following this result and given that the operating environment remains challenging, we have revised our FY’16 revenue and EPS forecast to N313.5 billion (Previous: N318.9 billion) and N4.55 (Previous: N5.83) respectively. This takes into account the faster growing economy segment with lower revenue/hectoliters and narrower margins, and an overall slower growth for Nigeria’s beer market in 2016. We have also reflected the effect of the spike in interest expense. Consequent to our earnings revision, our 12-month target price is lowered to N120.50, SELL (Previous: N143.20, BUY),” Vetiva analysts further stated.

Following the release of H1’16 results, the Board of Directors of Nigerian Breweries plc in a recent statement signed by the Company Secretary/Legal Adviser, Uaboi Agbebaku noted that rising inflation combined with higher inputs costs as a result of scarcity of foreign exchange, led to a flat operating profit compared with the preceding year.

“Despite a lower interest cost from the Commercial Paper Programme, PAT declined by 11 percent, mainly due to foreign exchange losses arising from the rates going up in June,” the Board noted.

Although the Board expects the operating environment in 2016 to remain challenging for the rest of the year, the Company remains focused on its twin agenda of Cost Leadership and Market Leadership supported by innovation and the Board remains positive on the Nigerian market for the medium and long term. Nigerian Breweries plc, a public Company quoted on the Nigerian Stock Exchange, was incorporated in Nigeria on November 16, 1946, under the name, Nigerian Brewery Limited. The name was changed on January 7, 1957 to Nigerian Breweries Limited and thereafter to Nigerian Breweries Plc in 1990 when the Companies and Allied Matters Act of that year came into effect.

The Company is a subsidiary of Heineken N.V. a company domiciled in the Netherlands, the latter having a 54.29% interest in the equity of Nigerian Breweries Plc.

Iheanyi Nwachukwu