Nigerian Breweries begins recovery journey with N12.7bn profit in 2021

Nigerian Breweries Plc closed the 2021 operations with a net profit of N12.7 billion, kicking off a long recovery journey after three years of profit rundown bottomed with a profit of N7.4 billion in 2020.

The brewing company still has a long way to travel uphill on the earnings track to return to the group’s peak profit figure of over N43 billion registered as far back as 2013. It is nevertheless a strong start for the company from a 54 percent profit drop in the preceding year to a 72 percent rebound in 2021.

The downtrend began in 2018 when a profit drop of 41 percent took the company’s closing profit of N19.4 billion to the lowest figure in 10 years. Group profit dropped by 17 percent to N16 billion in 2019 and then took a plunge in 2020 to hit the lowest figure in 15 years.

The stepping stones for the recovery in 2021 include an accelerated growth in sales revenue from 4 percent in 2020 to roughly 30 percent in the year. This represents an increase of as much as over N100 billion in sales in the year, which has seen the company to a new peak in turnover at the end of 2021.

This is a strong indication of improving consumer spending on brewed products after a sustained decline that has affected the industry generally.

Nigerian Breweries had closed the 2020 operations with sales revenue of N337 billion, down from the existing turnover high of over N344 billion attained in 2017.

Export sales remained constrained in 2021 with revenue from the line dropping from N144 million in 2020 to N128 million.

Another big step forward for the company in the year is addressing a major imbalance between sales revenue and the cost of the naira of sales. Cost of sales had been growing well ahead of sales revenue, which was a major profit undermining factor for Nigerian Breweries over the three years of falling profit.

Against the moderate increase of 4 percent in sales revenue in 2020, input cost grew by 14 percent to over N218 billion, consuming more than all the increase in sales revenue, resulting in a drop in gross profit to N118.7 billion.

The records changed in 2021 with input cost increasing at a slower pace than sales revenue at 26.8 percent to N277 billion compared to the almost 30 percent growth in sales revenue.

The moderated growth in input cost changed the company’s position from a drop of 10 percent in gross profit in 2020 to an increase of 35 percent to N160.4 billion in 2021.

There is also a turnaround from a drop in other income in the preceding year to a high growth of more than five and half folds to N4.6 billion at full year.

However, marketing/distribution expenses could not be contained, which rose well ahead of sales revenue at 37.6 percent to over N97 billion at the end of the year. Administrative cost followed the same pattern and grew ahead of turnover at 36.6 percent to over N26 billion.

With the strong gains on the side of income, the company was able to absorb the cost increases and still grow operating profit by a clear 40 percent to N41.5 billion at the end of the year. This is a turnaround from a 16 percent drop in operating profit in the 2020 financial year.

A slight decline in net finance expenses to N17.8 billion added to the positive changes that powered the big profit recovery for Nigerian Breweries in 2021. Cost of finance had jumped by 51 percent to N18 billion in 2020 to claim 61 percent of operating profit in the year.

With the slight decline in 2021 against a strong growth in operating profit, net finance cost claimed a reduced share of operating profit at close to 43 percent.

The increase in finance expenses in the preceding year was the biggest undermining factor to the company’s profit performance in the year. Also, the decline in 2021 is a major positive force in rebuilding profit in the year.

Nigerian Breweries reduced its dependence on debt financing with balance sheet borrowings dropping from N91.5 billion in 2020 to N31.4 billion at the end of 2021.

The ability to convert revenue into profit improved with the revenue growth and some cost reductions in the year. Net profit margin improved from 2.2 percent in 2020 to 2.9 percent in 2021. This remains one of the lowest margins for the company in many years.

The company has announced a final cash dividend of N1.20 per share, up on an interim cash dividend of 40 kobo per share paid in the course of the 2021 financial year.