Nigerian Breweries Profit Plunges on FX Losses, OPEX

Kayode Tokede

With higher costs in production influenced by double-dight inflationary environment, devaluation of the naira, and high-energy prices, Nigerian Breweries Plc reported decline in profit before tax in financial year ended December 31, 2022.

The multinational brewery marker reported a significant increase in revenue but the other financial parameters such as cost of sales, operating expenses and foreign exchange losses impacted the Group’s overall performance in the year under review.

Nigerian Breweries hits the highest revenue in 2022 financial year, driven by strong pricing to mitigate inflation and brand mix improvements.

The 2022 revenue growth 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.

Nigerian Breweries reported N550.64 billion in revenue in 2022, representing an increase of 26 per cent from N437.29billion reported in 2021.              

Cost of sales (CoS) moved to N337.31billion in 2022, an increase of 22 per cent from N276.87billion in 2021 to positioned gross profit at N213.33 billion in 2022 from N160.4billion in 2021.

The group’s CoS/Revenue stood at 61.3per cent in 2022 from 63.3per cent in 2021 and gross profit margin stood at 38.74 per cent in 2022 from 36.68 per cent in 2021. 

Nigerian Breweries’s total operating expenses (OPEX) that comprise of selling & distribution expenses and administrative expenses closed the year under review at N163.98billion, an increase of 31.6 per cent from N124.6billion reported in 2021.

The marketing-related costs accounting for 82.8per cent of the total OPEX. The persistent increase in operating expenses was driven by the challenging operating environment in Nigeria, and the brewer’s continuous focus on increasing brand visibility.

As a result, the group’s EBIT margin closed 2022 at 9.4 per cent from 9.5 per cent, while EBITDA margin stood at 16.6 per cent in 2022 from 18.9 per cent in 2021.

The Group reported that its net loss on foreign exchange transactions moved to N26.34billion in 2022 as against N7.04billion in 2021, and it is on the back of higher foreign exchange losses as exposure from its foreign currency-denominated payables.

Finance cost was at N8.42billion in 2022 from N11.07billion in 2021 bringing net finance cost at N34.42billion in 2022 from N17.79billion in 2021.

Net loss on foreign exchange transactions contributed 76.54per cent to net finance cost in 2022 as against 39.57 per cent in 2021.

Overall, the Nigerian Breweries recorded a profit before tax of N17.34 billion in 2022, a decline of 26.8per cent from N23.70 billion reported in 2021.

Following a tax expense of N4.15 billion in the period, profit after tax was higher at N13.19 billion from N12.67 billion reported in 2021.

The board of directors recommended the payment of a total dividend of N13.87 billion, which is N1.43kobo per ordinary share of 50k each to its shareholders.

It will be recalled that the company had earlier paid in October 2022, an interim dividend of N3.29 billion which translated to 40k per share.

The payment of the final proposed dividend of N10.584 billion at N1.03k per share will be paid after its next Annual General Meeting billed to hold on April 26, 2023.

The group closed 2022 with Basic earnings per share of N1.58 per share as against N1.57 per share in 2021.

Mounting loans & borrowings

Nigerian Breweries in the year under review expanded its loans & borrowings which contributed to total liabilities.

The Group reported a total loan & advance of about N122.25 billion in 2022 from N27.99 billion in 2021.

The breakdown revealed that long-term loans and borrowings dropped to N2.42billion in 2022, a decline of 41 per cent from N4.1billion in 2021 as short-term loans & borrowings hits N119.82billion in 2022, an increase of 401.6 per cent from N23.89billion in 2021.

Nigerian Breweries last year accessed Commercial Paper, loans from government, and bank loans to finance its working capital.

In all, total assets closed 2022 at N619.89billion, representing an increase of 27.7per cent from N485.52billion in 2021. As current assets stood at N155.42billion in 2022, an increase of 29.3 per cent from N120.17billion in 2021, Non-current assets rose by 27.13per cent to N464.5billion in 2022 from N365.4billion in 2021.

Total liabilities recorded N439.97billion in 2022 from N313.61billion in 2021, driven by loans & borrowings and Trade and other payables.

In the year under review, Non-current liabilities closed at N32.27billion as against N41.08billion in corresponding year as current liabilities doubled at N407.7billion in 2022, an increase of 49.6 per cent from N272.53billion in 2021.

The group reported N264.09billion Trade and other payables in 2022 from NN226.42billion in 2021, contributing about 64.77per cent of Current liabilities in 20222 as against 83.08 per cent in 2021.

Nigerian Breweries closed 2022 with N179.9billion total equity as against N171.91billion in 2021, driven by N90.77billion retained earnings in 2022 from N90.09billion reported in 2021.

Conclusion

The Company Secretary/Legal Director, Nigerian Breweries, Uaboi Agbebaku in a statement noted that the economic challenges experienced during the year under review had greatly affected consumer disposable income, but that the company showed great resilience, guided by its strong premium portfolio, brand mix improvements and strong pricing.

However, analysts at Cordros Research stated that, “We like that Nigerian Breweries continues to drive profitability with its pricing and premiumisation strategies, amid the pressure on margins, especially in Q4-22, underpinned by lower disposable income, high input costs, and naira devaluation.

“Going forward, we expect  Nigerian Breweries’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.”