Q3 loss trims Nigerian Breweries’ profit to N14.7bn

Nigerian Breweries Plc recorded a loss of almost N4 billion in the third quarter, which trimmed its half-year closing profit of N18.7 billion to N14.7 billion at the end of the third quarter. The company’s third-quarter interim financial report at the end of September 2022 shows that earnings results worsened from a drop in quarterly profits in the second quarter into a loss in the third quarter.

The brewing company had recorded a sharp drop from its much promising first-quarter profit of N13.6 billion to N5.1 billion in the second quarter. The downward move gained momentum in the third quarter from declining profit into a loss.

The company’s big challenge remains with marketing and distribution expenses that are consuming much bigger proportions of sales than recorded at any time in recent years. Marketing/distribution cost rose by 33.6 percent quarter-on-quarter in the third quarter to N30.6 billion compared to an increase of 19.4 percent in net sales revenue to N119.4 billion for the quarter.

The cost of marketing/distribution to generate the naira of net sales revenue in the third quarter grew from less than 23 kobo in the same quarter last year to 25.6 kobo in the third quarter of the current year.

With lower volume performance, marketing/distribution expenses claimed as much as 85.5 percent of net sales in the third quarter, rising from 70 percent in the same period in 2021. The company’s statement on the third quarter earnings report attributed the lower volume to market seasonality reflecting pressure on consumer disposable income as well as heavy rains and flooding.

The second major rising cost in the quarter is cost of sales, which also grew ahead of turnover for the quarter at 24 percent quarter-on-quarter compared to 19.4 percent. The imbalance resulted in a low rate increase of 9.8 percent in gross profit for the quarter to N35.8 billion.

Gross profit for the quarter was insufficient to meet marketing/distribution and administrative expenses, which resulted in an operating loss of N452 million for the third quarter.

Further pressures came from a huge net loss of over N3 billion on foreign exchange transactions, an increase of 163 percent quarter-on-quarter. Finance cost of over N3 billion swelled net finance expenses for the quarter to over N6 billion, creating a pre-tax loss of N6.6 billion.

Some respite came from a tax credit of N2.6 billion, leaving a net loss of roughly N4 billion for shareholders in the third quarter.

Nigerian Breweries’ nine-month earnings position shows a turnover of N393.4 billion, which is an increase of 27 percent. Input cost moderated at an increase of 20 percent to N239 million over the period, which permitted a top record growth of almost 40 percent in gross profit to N154.5 billion. This amounts to an increase of N44 billion in gross profit over the period.

The challenge of rapid increase in marketing/distribution expenses the company has faced since the second quarter adversely impacted the nine-month position. The cost of marketing/distribution rose ahead of turnover at 46.4 percent to N101 billion at the end of the third quarter.

The adverse impact of marketing/distribution expenses was however partly diluted by strong growth in other income from N894 million to N2.5 billion over the review period. A moderated growth of 17 percent in administrative expenses to N20.6 billion also helped by way of some cost savings.

The favourable developments helped to achieve a 43 percent growth in operating profit at the end of the third quarter, amounting to N35.4 billion.

An upsurge of 135 percent in net loss on foreign exchange transactions to N10.4 billion and a finance cost of N6.2 billion built a net finance cost of over N16 billion at the end of the third quarter, an increase of 35.8 percent year-on-year.

The closing after tax profit of N14.7 billion for the company still represents an outstanding growth of 79.4 percent from its closing profit of N8.2 billion in the same period last year.

The company’s management is cautious about the outlook for the final quarter as developments in input cost and consumer demand are quite dicey.

Nigerian Breweries has announced an interim cash dividend of 40 kobo per share with a closure date of 23^rd November and a payment date of  December 1st, 2022.