OPEX, FX Losses Weaken Nigerian Breweries Profit

Kayode Tokede
On the backdrop of significant increase in total operating expenses and net loss on foreign exchange transactions, Nigerian Breweries Plc reported 27 per cent decline in profit before tax and grew profit after tax by 4.06 per cent over a decline in tax expenses.
The decline in profit before tax dragged the profit margin to 3.1 per cent in 2022 from 5.4 per cent in 2021,, while the profit after tax margin stood at 2.4 per cent in 2022 from 2.9per cent in 2021.

Nigerian Breweries in its audited financial statement for full year ended December 31, 2022 reported N17.34billion profit before tax from N23.7billion reported in 2021, while profit after tax grew by 4.06 per cent from N12.67billion in 2021 to N13.19billion in 2022.
The group thus recommended to shareholders a total dividend of N13.87 billion, that is, N1.43 kobo per ordinary share of 50 kobo each.
The total dividend is comprised of an interim dividend of N3.28, that is, 40 kobo per share, and a final dividend of N10.58 billion, that is, N1.03 kobo per share.
The group reported an Earning Per Share (EPS) of N1.58 in 2022 from N1.57 in 2021.

 The achieved EPS was driven by the sturdy growth in revenue. As the board proposed a final dividend per share of N1.03 in 2022 from N1.20 in 2021, it implies a dividend yield of 2.5per cent based on the last closing price of N41.50 as of February 24, 2022.
The Group 2022 performance was weakened by a significant increase in total operating expenses and Net loss on foreign exchange transactions, over a challenging business environment.

The breweries manufacturing company reported N337.31billion cost of sales in 2022, an increase of 21.8per cent from N276.87billion in 2021 to positioned its gross profit at N213.33billion in 2022, representing an increase of 33 per cent from N160.41billion reported in 2021.
Gross profit margin expanded by 206basis points to 38.7per cent in 2022 from 36.7 per cent in 2021, as the strong revenue growth outweighed the increases in the cost of sales.

The higher cost in the period was influenced by the highly inflationary environment, devaluation of the naira, and high energy prices.
Total operating expenses elevated to N163.98billion in 2022, an increase of 31.6 per cent from N124.6billion in 2021 with marketing-related costs accounting for 82.8per cent of the total operating expenses.

The breakdown of total operating expenses revealed a 38.1 per cent increase in selling and distribution expenses to N135.83billion in 2022 from N98.36billion in 2021, while administrative expenses stood at N28.15billion in 2022, representing an increase of 7.3 per cent from N26.24billion reported in 2021.
The persistent increase in operating expenses mainly to the challenging operating environment in Nigeria, and the brewer’s continuous focus on increasing brand visibility.

In addition, the overall operating cost (Cost of sales, Selling and distribution expenses, among others) increased to N501.87billion in 2022 from N400.42billion in 2021.
Nigerian Breweries in 2022 spent aa whopping sum of N246.72billion on raw materials and consumables from N197.82billion in 2021.
Profit from operating activities stood at N51.76billion in 2022 from N41.49billion in 2021.

As net loss on foreign exchange transactions grew significantly to N26.34billion in 2022, an increase of 274per cent from N7.04billion in 2021, it brings net finance charges to N34.42 billion in 2022 from N billion reported in 2021.
Nigerian Breweries exposure from its foreign currency-denominated payables amid a 23.9per cent decline in finance cost.
From the profit & loss figures, the multinational breweries reported N550.64billion revenue in 2022, representing an increase of 25.9per cent from N437.3billon in 2021

Nigerian Breweries growth in revenue was primarily driven by strong pricing to mitigate inflation and  brand mix improvements.
The performance was also supported by a strong performance of the premium portfolio, led by Tiger and Desperados, and the continued momentum of Heineken, while the low and non-alcoholic portfolios remained broadly stable.
According to the management, the total volume in the period weakened, reflective of the pressure on consumer disposable income amid supply chain challenges.

Raising debt-to-equity ratio
Nigerian Breweries reported a significant increase in its liabilities that impacted on debt-to-equity ratio last year.  Debt-to-equity ratio moved to 2.45x in 2022 from 1.82x in 2021, following an increase in total liabilities.
The group’s total liabilities stood at N439.97billion in 2022 from N313.61billion in 2021 influenced by N119.8billion long term loans and borrowings in 2022 as against N23.8billion reported in 2021.

Consequently, the total liabilities to total assets increased to 94.7per cent in 2022 from 85.84per cent in 2021.
Nigerian Breweries, thus, reported N179.9billion total equity in 2022, representing an increase of 4.65 per cent from N171.9billion in 2021.
From the Group’s balance sheet position, total assets closed 2022 at N619.89 billion, an increase of 28per cent from N485.22 billion in 2021.
Current assets moved to N155.42billion in 2022, representing an increase of 29.3 per cent from N120.17billion in 2021, while Non-current assets stood at N464.5billion in 2022 from N365.4billion reported in 2021.

Remarks
The Company Secretary, Nigerian Breweries, Uaboi Agbebaku, in a statement said the growth in revenue was driven by brand mix improvements and strong pricing.
According to him, “The total market decreased by high single-digit reflecting pressure on consumer disposable income as well as naira devaluation and inflation. Nevertheless, we outperformed the market led by our strong premium portfolio.

“Cost of Sales, Marketing, and Distribution expenses were under pressure due mainly to inflation, devaluation of the naira and high energy prices.
“While the operating margin was flat, our Profit after tax margin was reduced driven mainly by the increase in foreign exchange losses due to the naira devaluation and foreign currency scarcity.”

Analysts at Cordros Research in a report stated that Nigerian Breweries continues to drive profitability with its pricing and premiumisation strategies, amid the pressure on margins, especially in the fourth quarter (Q4) 2022, underpinned by lower disposable income, high input costs, and naira devaluation.
“Going forward, we expect NB’s profitability to remain satisfactory in 2023E, supported by solid revenue growth.
“However, we highlight that weak macroeconomic fundamentals, depressed consumer wallets, and elevated operating cost remains significant headwinds to volume growth and profitability. Our estimates are under review.”