NB Plc losing the shine as profits dip

NB Plc products

By OKEY ONYENWEAKU

This may not be the best of times for the stakeholders of Nigerian Breweries PLC. Recent figures of the company do not seem to give shareholders much reason to smile. The 60 kobo interim dividend paid by the giant brewer might look good on the surface, but discerning shareholders are discomforted by the decline in its top and bottomlines. The dividend is a far cry from what it has paid as interim dividend in the last five years.

Its nine months results for the year ended 2018, reveals a drop in Profit before tax by 35 per cent from N34.4billion in 2017 to N22.4billion in 2018. Revenues also slid 5.6 per cent from N270billion to N254billion in 2018.

As investors pore over the company’s books, they noticed that its profit after tax also trended downwards by 38.4 per cent from N24.010billion in 2017 to N14.789billion in 2018.

Whereas, the management of the brewer blamed its weak performance on high excise duties which rose from N15.539billion in 2017 to N16.932billion given the hike in taxes on tobacco and alcohol, gross profit also dropped 11.36 per cent from N106.862billion to N94.7billion.

However, reduced cost of sales and cautious management of marketing and distribution expenses helped to cushion the rate of its profit decline.

On quarter to date assessment, the company posted a loss of -N5.090billion in the three months to September 2018.

A critical observation of its operations show that NB Plc has borrowed more this year to N27.720 billion from N9.326 billion as at December 2017, while inventories are dangerously high at N34.664 billion. But NB Plc’s declining streak did not start today.

The giant brewer had reported 22 per cent decline in Profit After Tax (PAT) for the half year ended June 30, 2018. The company during the period posted a profit after tax of N18 billion compared to N24 billion recorded in the corresponding period of 2017. Profit before tax dropped by 19 per cent from N34 billion in 2017 to N28 billion in the period under review. Revenues also declined by five per cent to N173 billion from N181 billion in the comparative period of 2017.

The NB Company Secretary/Legal Adviser, Mr. Uaboi Agbebaku had blamed the weak results on the new excise duty regime and higher rate of beer introduced by the Federal Government in June 2018 further impacted on affordability in the period under review.

President Muhammadu Buhari had reportedly approved an amendment to the excise duty rates for alcoholic beverages and tobacco with effect from June 4.

The former Minister of Finance, Mrs. Kemi Adeosunhad explained that the upward review of the excise duty rates for alcoholic beverages and tobacco is to achieve a dual benefit of raising the Federal Government’s fiscal revenues and also aimed at reducing the health hazards associated with tobacco-related diseases and alcohol abuse.

BusinessHallmark’s research reveals that the new excise duty and other macro- economic challenges have had a sad toll on Breweries industry. This is reflected in the weak results that many of them have released in the third quarter 2018.

For instance, International Breweries posted a huge loss of -N9.189billion caused by huge administrative expenses, high cost of sales and high finance cost.  Champion Breweries Plc could not escape the weakening streak as its profit also fell N94.194 million to N54.915 million.

A Lagos based analyst, Mr. David Adonri believes that the weak economy which has shrunk the purchasing power of the beer drinking population caused by low wages could be affecting the company’s sales figures.

Inflation at 11.2 per cent, according to him is also high indicating that people are having challenges to consume as much beer as they would have loved.

The Nigerian economy has proved to lack what it takes to support qualitative productive activity as it growth retreated from 1.9 percent in the first quarter 2018 to 1.5 per cent in the second quarter.

Many industry stakeholders have accused the government of lack of focus in managing the economy, where debt is ballooning at $22bn and its servicing gulps over 60 per cent of revenue. All these have conspired to constitute a drag in the way the economy is managed, prompting international rating agencies to add their voices. Some have even divested in the recent past.

Recently the Economist Intelligence Unit (EIU), the research unit of The Economist Magazine,  warned in a report that the Nigerian economy was deteriorating and sinking  and would worsen if President Buhari is re-elected for a second term in 2019.

EIU went on to predict that the opposition Peoples Democratic Party (PDP) would defeat Buhari of the ruling All Progressives Congress (APC) in the upcoming 2019 presidential election.

In the same vein, the HSBC had noted that President Buhari’s approval rating was crumbling, indicating that the country is not being managed and steered in the right direction, reflecting in the excruciating hardship in the country.

Recent report revealed that Nigeria’s Gross Domestic Product (GDP) per capita, for Nigeria in 2017 was $2,412.41, while that for South Africa was $7,524.51 in the same period. Nigeria is the biggest economy by GDP in Africa.

Some observers sympathise with the manufacturing companies as they attribute their predicament to ill-advised government policies that have crippled manufacturers and allowed little elbow room for them to manoeuvre out of a high cost manufacturing situation.  The weakness of the domestic currency in the foreign exchange market and foreign exchange access restrictions placed on 41 categories of imports make a bad situation worse as the manufacturing companies had to seek foreign exchange from the parallel market where foreign currencies were sold at premiums above 60 per cent of official market rates.

It is commonly known that the Nigerian manufacturing industry is relatively small in relation to the size of the domestic economy.  This owes to several challenges which include the neglect of the sector in favour of oil, an epileptic power supply, and the country’s deficient infrastructure, among others.

However, the brewery industry is growing relatively fast even though the economy is skewed in favour of oil.  There is also intense competition amongst all the operators. For instance, the Nigerian Breweries and Guinness Nigeria are long time competitors for market dominance.

In spite of the fact that production volumes have continued to increase over the past five years, Nigerian Breweries has faced the problem of strained production capacity. This necessitated its acquisitions of Sona Systems Associates Business Management Limited, which currently owns two breweries in Nigeria (Sango Otta and Kaduna), and Life Breweries Company Limited (Onitsha). This has enhanced the production capacity for Nigerian Breweries as well as given it the rights to the brands of Sona Systems (Goldberg lager and Malta Gold) and Life Breweries (Continental Life lager). Its distribution channels have also been enhanced.

It is indeed a formidable company and has been consistent in rewarding loyal shareholders with dividends. Details show that the company paid dividend of N4.1billion in 2004, N4.9billion in 2005, N9.07billion in2006, N12.02billion in 2007 and N36.6billion in 2008.

In specific terms, it paid 100K in 1998;135kobo in 1999; 150kobo in 2000; 158kobo in 2001,225kobo in 2002; 210kobo in 2003;110kobo in 2004; 40 kobo in 2005; 159kobo in 2007; 350kobo in 2008; 180kobo in 2009, 240kobo in 2010, 300kobo in 2011 and 300 kobo in 2012. The company also paid 300kobo in 2013, 575kobo in 2014, 470 in 2015, 358kobo in 2016and 313 kobo in 2017.

By the records, the company has rewarded shareholders better than many other firms listed on the Nigerian Stock Exchange.

Whereas, President Association of Stock Broking Houses of Nigeria, Mr. Emeka Madubike believes that nobody can accurately predict the future performance of any company, he expressed reservation over what to expect in the company’s end of year results.

However, the breweries sector has been deeply challenged since 2013 and is suffering a decline following the outbreak of insurgency in parts of the north east. This many believe is hurting sales volume and squeezing margins for all the operators.

Low consumer spending has also been fingered for its challenges. Among the troubles of the industry is rising consumer prices and growing volumes of unpaid workers’ salaries in public and private sectors, in addition to increasing unemployment. Stiffer competition in the sector and companies seem to increase the cost of sales now than ever before.

Nigerian Breweries is also no doubt one of the best rewarding stocks on the NSE. Over the years, investors have earned mouth-watering returns following excellent management and continued investment on expansion.

By this logic, it means the company returned below expectations this year. However, it is a good performance in a depression. But analysts are afraid that the development is not good news for investors who have invested massively in the stocks of the company based on its impressive antecedents. They would have preferred a company that could defy the bad situation and perform wonderfully well.

This notwithstanding, the company’s stock has been resilient since last year. However, it is interesting that investors have lost 39% this year as the stock has declined from N135.05 on January 2, 2018 to N81.60 last Thursday, November 7, 2018.

NB plc is one of the stocks that have remained resilient in the prevailing mixed performance of the market. Industry watchers suspect that the proposed returns which many consider relatively not too impressive may not affect its stock significantly given the weak disposition of the market.

Company Profile

NB was incorporated in 1946 and took off earnestly in 1949. After three years of preparation, recording a landmark when the first bottle of Star lager beer rolled out of its Lagos Brewery bottling lines. This first brewery in Lagos has undergone several optimisation processes and today boasts of the most modern brew house in the country.

In the course of its capacity building, the company commissioned its second brewery in Aba.  Kaduna Brewery was commissioned in 1963 while Ibadan Brewery came on stream in 1982.

In 1993, the company acquired its fifth brewery in Enugu. In October 2003, it followed with the commissioning of a sixth brewery at Ama-Eke, also in Enugu State. Ama Brewery is today, the biggest and most modern brewery in Nigeria. Operations in the Old Enugu Brewery were however discontinued in 2004, while the company acquired a malting plant in Aba in 2008.

In October 2011, NB acquired majority equity interests in Sona Systems Associates Business Management Limited, (Sona Systems) and Life Breweries Limited from Heineken N.V. This followed Heineken’s acquisition of controlling interests in five breweries in Nigeria from Sona Group in January 2011.

Sona Systems’ two breweries in Ota, Ogun State and Kaduna, as well as Life Breweries in Onitsha have now become part of Nigerian Breweries Plc, together with three brands: Goldberg lager, Malta Gold and Life Continental lager. The company now has eight operational breweries from which its products are distributed to all parts of Nigeria, in addition to the ultra-modern malting plant in Aba and Kaduna