Nigerians are famous for their love for all things alcohol, especially beer.
This explains the availability of quite a handful of brewers across the country. Five of these brewers are listed on the country’s stock market and they include Nigerian Breweries Plc, Guinness Nigeria Plc, International Breweries Plc, Golden Guinea Breweries Plc, and of course, Champion Breweries Plc.
The scorecard for the companies’ latest financial results showed the high cost of production and inflationary environment are making Nigeria’s top beer (alcohol) makers focus more on improving their profitability and financial performance as against fighting for market share and brand awareness.
The trio of Nigerian Breweries, Guinness and International Breweries recorded a 34.89 percent increase in combined revenue to N779.92 billion last year, compared to N578.17 billion in 2020.
However, over the last four years the Nigerian entity, International Breweries has struggled to grow its bottom line.
While Nigerian Breweries and Guinness recorded profits in 2021, International Breweries reported a loss during that same year. The firm recorded a loss in 2021 to the tune of N17.66 billion, a 9.83 percent increase from the N16.08 total loss recorded in the preceding year.
Analysts say one of the major factors contributing to the losses is operational costs caused by exchange rate fluctuations, devaluation, high financial leverage, COVID-19 disruption in 2020, etc.
The losses and net profit margins wiped out its retained earnings, leading to retained loss of N35.958 billion in Q1 2022; though a marginal drop of 1.97 percent from 2021FY accumulated loss of N36.679 billion due to the profit recorded in Q1 2022.
For instance, in 2019, cost of sales rose by 26.81 percent to N107.144 billion from N84.494 billion in 2018. In 2021, it rose by 28 percent to N135.99 billion from N106.32 billion in 2020, driven by N108.28 billion in materials consumed and allocated to overheads reported in 2021 from N79.9 billion in 2020.
Operating expenses rose by 32 per cent to N53.6 billion in 2021 from N40.57 billion in 2020, attributable to 29percent increase in administrative expenses, and not only in 2021, had administrative expenses grown, but in previous years too.
Things seem to be improving this year based on the released Q1 2022 results as the company returns to the path of profit. The unaudited first quarter, 2022 financial result and accounts showed Profit After Tax of N721.167 million from loss after tax of N2.579 billion reported in Q1 2021.
The growth in earnings was driven by revenue growth, reduced cost of sales and growth in finance income.
Read also: Q1 2022: Nigerians consuming more alcohol help beer makers record profit growth
While revenue grew by 47.63percent to N57.521 billion from N38.964 billion in Q1 2021, cost of sales grew slower by 15.67percent to N37.567 billion from N32.479 billion in Q1 2021, to position gross profit at N19.954 billion, representing an increase of 207.65 per cent from N6.89 billion reported in Q1 2021.
Its shareholders’ equity dipped to N135.30 billion in 2021 from N151.73 billion in 2020. The company recorded total shareholders’ equity of N7.26 billion in 2019.
International breweries’ debt-to-equity ratio stood at 130 percent in 2021, an increase from 73 percent in 2020. In 2019, its debt-to-equity ratio was a whopping 3,534 percent.
The beer company recorded net debt of N175.41 billion, up from N110.67 billion in 2020. In 2019, its net debt stood at N263.64 billion.
“Why do they have this level of debt when they are not producing at the level they should,” Ayodeji Ajilore, an equity research analyst, at CSL Stockbrokers Limited said.
Ajilore added, “if I want to bet on any of the companies, I would bet on Nigerian Breweries and Guinness because it shows that their financial health is far better than that of international breweries.”
Nigerian breweries
Analysis shows that in 2021, Nigerian breweries had a debt-to-equity ratio of 18 percent, a decline from 57 percent in 2020 when its debt levels were higher than in 2019 when a ratio of 39 percent was also recorded.
In 2021, Nigerian breweries total debt increased to N31.37 billion from N91.45 billion in 2020. According to its financial report, the beer maker recorded total debt amounting to N65.48 billion in 2019.
The beer maker’s shareholders’ equity increased to N171.71 billion in 2021 from N161.18 billion in 2020, an increase from 2019 when it recorded N167.75 billion.
Nigerian breweries saw a 71.91 percent increase in profit to N12.67 billion in 2021 from N7.37 billion in 2020. The company’s revenue surged by 29.73 percent to N437.2 billion from N337 billion in 2020.
The finance cost for the company declined by 18 percent to N11.07 billion from N13.5 billion in the year 2020.
Guinness
An analysis of its financial report shows that Guinness had a debt-to-equity ratio of 22 percent in 2021, a decline from 31 percent in 2020. This is, however, an increase from the ratio of 15 percent recorded in 2019.
In 2021, the company had debt levels of N15.99 billion, a decline from N22.80 billion in 2020. In 2019, the beer maker recorded a total debt of N13.38 billion.
Its equity increased to N74.29 billion in 2021, from N73.04 billion in 2020 and lower than that of 2019, when N89.06 billion was recorded.
Guinness saw its profit after tax surge to N1.26 billion last year from a loss of N12.58 billion in 2020. Pre-covid year, 2019, the beer maker’s revenue rose by 53.69 percent to N160.42 billion in 2021 from N104.38 billion in the previous year.
The beer maker’s finance cost rose to N4.63 billion in 2021, a 1.98 percent increase from N4.54 billion recorded during the covid year, 2020.
Abiola Gemisola, Assistant Manager, Equity Research at FBN Quest said Nigeria’s beer-makers are coming out of a highly leveraged position.
“The reasons for this are that some of their debts have matured; their cash balances have improved significantly in the last 18 months to two years due to price increases and increased sales post-covid, while there’s been no need for significant investment in production capacity,” Gbemisola said.
He added that Guinness and Nigerian breweries have moderate debt levels, while International Breweries, which used to be highly leveraged, are beginning to moderate their debt levels.
Chibundu Emeka-Onyenacho, Analyst (SSA Consumer), Equity Research, Renaissance Capital said Pricing was key in beer makers performance in 2021.
“Players such as Nigerian Breweries increased prices in February and the acceptance was higher supported by reduced competition in the lager space (Guinness is reducing its exposure to lager and focusing on stout and spirits) and the fact that beer in Nigeria is still cheap compared to other African countries,” Emeka-Onyenacho concluded.
