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Harsh environment, infrastructure deficit shrink brewery earnings


Brewed beer

The brewery subsector has also come under the onslaught of unfavourable macroeconomic factors induced by the impact of stiff competition, lower consumer spending and pressured production volumes, and infrastructure deficit, which moderated earnings of the brewing companies, with attendant depression of profit margin.
Additionally, worsening security situation in Nigeria’s middle-belt region has put significant pressure on the sector following disruptions in the supply of barley, sorghum, maize, rice, and wheat, which are primarily sourced in the region.
Consequently, the share prices of these companies on the trading floor of the Nigerian Stock Exchange (NSE), have stagnated following negative sentiments that enveloped the demand for their stocks.
Specifically, from a high of N146 in 2016, the Nigerian Breweries Plc stock price as at Tuesday, April 16, stood at N64.

Indeed, the brewery giant has continued to battle with lower sales and declining bottom line, as it posted a profit after tax of ₦8.23 billion for the half year (H1) ended 30th June 2018, a 33 per cent decrease compared to profit of ₦12.32 billion recorded in H1 2017, while earnings per share of 103 kobo for the period ended June 2018, against earnings of 154 kobo reported for the comparative period in 2017.
For the 2018 financial year, Nigerian Breweries announced a profit after tax of N19.4 billion and revenue of N324.4 billion. The Profit after Tax was lower than the N31.6 billion recorded in 2017, representing a 41 per cent decline, while revenue also dipped from the N344.5 billion recorded in 2017, a six per cent decline.  
According to the audited financial results released to the Exchange, the company’s directors are recommending a total dividend of N19.4 billion, or N2.43 kobo per share representing a 100 per cent dividend payout ratio .  
The company had earlier in 2018, paid an interim dividend of N4.8 billion, which translated to N0.60 kobo per share; while the final dividend will be N14.6 billion at N1.83 kobo per share. 
If the proposed final dividend is approved, this will become payable on May20th to all shareholders whose names appear on the company’s register of members at the close of business on March 6th.       
In the statement signed by the company Secretary/Legal Director, Uaboi Agbebaku, the 2018 results were adversely impacted by a challenging operating environment, and increase in excise duty that became effective during the year.
The Chairman of the Company, Chief Kola Jamodu, at the yearly general meeting had maintained that the operating environment in 2017 was very challenging, especially from an input cost, foreign exchange and purchasing power perspectives.
To boost its working capital, Nigerian Breweries said it will close its N15billion commercial paper programme this week, which it opened last Thursday, in a bid to support its short-term funding requirements.
According to a statement obtained from the Nigerian Stock Exchange, the company is offering 11.59 per cent and 14.43 per cent yield on its 90- and 182-day commercial paper, respectively.
Afrinvest Securities Limited, said the offer for the series 1 and 2 commercial papers, which opened on April 11th, and ended April 18, while the settlement date will be April 23rd.

The Series 1 commercial paper has a tenor of 90 days, with effective yield of 11.59 per cent, a discount rate of 11.268 per cent and would mature on July 22.
The Series 2 commercial paper has a tenor of 182 days, an effective yield of 14.43 per cent, a discount of 13.46 per cent, and would mature on October 22nd.

Nigeria Breweries is not alone in the brewery downturn, as International Breweries (IB) Plc, the Nigerian unit of Belgian brewer Anheuser-Busch InBev (AB InBev), reported ₦2.2billion in net loss for Q1 2018 ended March.
The brewer blamed the loss on rising costs including skyrocketing foreign exchange (FX) loss, which grew by 310 per cent to ₦158 million.

Administrative expenses and net finance cost rose by 300 and 367 per cent respectively to ₦6.3billion and ₦3.6billion. Cost of sales also grew 227 per cent to ₦16.8billion, driven partly by FX and the FX impact on financing cost, which led to the record ₦2.2billion loss.
Despite the loss, IB Plc said sales grew by 175 per cent to ₦25.9billion from ₦9.4billion a year ago, fuelled by a 272 per cent increase in marketing and promotional expense.
The brewer announced in September it would be changing its financial year-end to December 31st from March 31st of every year following the merger with its sister companies – Intafact Beverages Limited, and Pabod Breweries Limited. While the April – June 2017 accounts for only one company (IB Plc), the quarter under review is for the merged companies (January – March 2018).
According to analysts in Afrinvest Capital Limited, “We highlighted the likely impact of the latest fiscal regulation on the brewery sector, following the introduction of additional excise duty on alcoholic beverages that came into effect on June 4th, 2018 . 
“Following the introduction of the tax, listed players initially responded by increasing prices to reflect the additional taxes, however, competitive pressures forced a reversal, with companies opting to bear the burden. 
“Total quality management substantially enhanced industrial performance in the brewery subsector of the Nigerian economy. Firms should initiate and implement company-wide and customer-centred Total Quality Management programmes to attain and sustain customer.”

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