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Declining margins show NB operating in tough environment

The financials of Nigerian Breweries (NB), a giant brewer in Nigeria’s manufacturing industry and a controller of 56 percent market share, have shown the impact of the country’s biting economy as margins fell, though marginally.

Analysis of the brewer’s 2019 full-year results show that its revenue declined by a marginal 0.4 percent to N323 billion, from the 324 billion realised in the previous year.

The company’s profit before tax fell to N23 billion from N29 billion, and after a tax deduction of N7.2 billion its profit for the year fell by 17 percent from N19 billion to N16 billion.

Earnings from its operating activities dropped by 4.6 percent to N35.2 billion from N36.9 billion recorded in 2018, and as part of its Corporate Social Responsibility (CSR) activities, NB disclosed that it made gifts and donations valued at N94 million in 2019.

Marketing and distribution expenses of the company increased by 10 percent due to higher costs of advertising, sales promotion, and transportation. Although this marketing effort supported revenue in the fourth quarter, its impact was largely subdued over the full year period.

On the Nigeria bourse, the company’s market capitalisation dropped by 31 percent to N471 billion from N683 billion in 2018, while it declared a dividend of N18 billion, representing 37 percent drop from the N29 billion declared in 2018.

According to the company’s reports, the decline in revenue was due to the country’s challenging environment which also affected it in 2018.

“The results of the company were adversely impacted by the increased excise duty rates which came into effect during the year coupled with a challenging operating environment,” it said.

Analysts say that going forward, beer makers in Nigeria will face a tough year as the recent hike in Value added Tax (VAT) and excise duty, and the proposed increase in tariff on electricity are expected to keep consumer discretionary spend under pressure. The industry could also experience higher  raw  material  costs  stemming  from  sustained  closure  of  the land borders.

However, as a manufacturing company, NB engages actively in local sourcing. Its report states that “Local sourcing is a vital priority in our long-term sustainability agenda and we achieved 52.5 percent local sourcing of our raw materials in 2019. We continue to explore the use of locally grown raw materials in the production of our brands.”

The company is also working on the introduction of new sorghum varieties and the reinvigoration of our existing non-hybrid sorghum varieties with the potential of sustaining higher yields and improving pest and/or disease tolerance

It revealed that it has loans which it is still paying to five Nigerian banks in deals  signed in 2016 with a tenor of five years. The loan was used to finance its working capital ranging from ₦6 billion to ₦15 billion.

Analysts further say that the company’s revenue will experience better days as the brewer revealed in January  that its Commercial Paper (CP) programme would launch  the 5th  and 6th series after concluding  the series 1 to 4 of its N100 billion CP programme. It commenced on the 3rd of February 2020, with the series five existing for a tenor of 180 days, while the series six would be for 270 days.

The company aims to raise N45 billion to support its short-term funding needs. The CP programme is expected to continuously provide support to its cost management initiative with the overall aim of reducing its cost of fund as well as providing opportunity for non-equity investors to put money in the company. It added that it would also be a source of funding for the company.

Despite the drop in its revenue and bottom line, the company, in its report, said it is making considerations to pay its shareholders a dividend of N2 per share to its shareholders. “A total dividend of N16 billion for the 2019 financial year has been recommended by the board for approval,” it said.

The company also disclosed that its 74th Annual General Meeting (AGM) would be held on Wednesday 22nd April 2020 in Lagos in order to discuss the financial report for 2019, declare a dividend , elect members of its audit committee, as well as other issues that concern its growth.

 

Gbemi Faminu

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