Nigerian Breweries: Losing revenue, losing profit

Nigerian Breweries is losing both sales revenue and profit in the current year, stepping downward again after breaking a trend of declining profits in 2017.

Sales revenue was down by over N8 billion at the end of half-year trading and the company lost more than N5 billion in net profit. Costs generally failed to go down alongside with sales revenue and that has weakened the company’s profit capacity.

Year-on-year drops in revenue and profit have been on since the first quarter even increasing in the second quarter. Prospects for a change over to positive growth in the second half of the year aren’t promising in the environment conditioned by the runoff to the 2019 general elections. Last year the company lost its strong growth momentum in the second half of the year.

Management’s outlook for the year expects that low consumer confidence would continue to hurt sales revenue performance. It considers the improvement recorded in the macroeconomic conditions insufficient to spur consumer demand and sales volume.

The company closed its half-year operations with sales revenue of N183.69 billion – a year-on-year drop of 4.3%. Last year the company earned 56% of its closing revenue of N344.56 billion in the first half of the year. If the slowdown in the second half happens again this year, the year-on-year decline may follow the company to full year. That could see turnover down to the region of N328 billion for Nigerian Breweries at the end of 2018.

After-tax profit amounted to N18.43 billion for Nigerian Breweries at the end of June 2018 – a year-on-year drop of 22.4%. That is double the 11% drop the company recorded in the first quarter. The company closed last year’s operations with an after-tax profit of N33.05 billion, close to 72% of which was earned in the first half of the year.

Nigerian Breweries is a watch candidate whether or not earnings growth would follow last year’s pattern. Maintaining or improving the current growth momentum will most likely see a significantly improved second half while a slowdown would sustain the year-on-year earnings drop.

The drop in profit of over five times ahead of turnover is explained by generally rising costs as sales revenue declined. Cost of sales was sticky downwards and declined less rapidly than sales revenue at 2.6% compared to 4.3% over the review period. That increased the rate of drop in gross profit to 7%, closing at a little over N76 billion at the end of June.

A further disappointment came from other operating income, which dropped by 76% to N431 million year-on-year. The revenue constraints were further reinforced by a 10% rise in administrative expenses as well as a flat growth in marketing/distribution cost.

These developments depressed profit capacity further, resulting in a drop of about 20% in operating profit, which stood at N31.62 billion at the end of half-year operations in June.

Some respite came from a drop in finance expenses during the period and that enabled the company to prevent a further encroachment of costs on profit margins. Net finance cost dropped by 22.7% to N4.07 billion at the end of June, overturning the upsurge of 37% in the first quarter.

The drop in the cost of finance doesn’t appear sustainable in view of a sharp growth in balance sheet debts over the six months of the year. Long- and short-term borrowings have more than tripled at close to N32 billion from the closing figure in 2017.

Nigerian Breweries earned N2.30 per share at the end of half-year trading, down from N2.97 per share in the same period last year. It closed the 2017 financial year with earnings per share of N4.13 and gave all of it out to shareholders in cash dividend.