In the difficult operating conditions in which many businesses are operating in today, the brewing giant, Nigerian Breweries has become the latest of a rising number of firms that are posting results reflecting the dire situation in the country at the moment.

But bad as the situation is present, the prognosis already is that it would not be until the next quarter that the full impact of the harsh operating environment would be manifest. And as things are going now, it is almost clear that except something miraculous happens, it may not be pleasant shortly. Almost all projections suggest bad times ahead and already, businesses and firms are experiencing the toughest times in their lives. The twin deadly and corrosive pandemics ranging from the abysmally low price of crude and the crumbling effect of Covid-19, commonly called Coronavirus have brought not only the world economy but also national economies to their knees.

Their corrosive effect has dealt a bad blow on the performances of manufacturing firms, not sparing the Breweries industry. This is reflected in the first quarter results of Nigerian Breweries Plc whose profit declined by 27 per cent in the period ended March 31, 2019. The 2020 results of the company which was recently released by its management to the public tell clear stories of challenging times ahead.

 According to the giant brewers’ report card, its profit before tax fell from N11.442 billion it had recorded in the first three months of the year 2019 to N8.275 billion in 2020.

The unaudited results of NB Plc also revealed that while its revenue declined marginally by 0.9 per cent from N83.277 billion in 2019 to N83.204billion in 2020, its cost of sales and marketing, distribution and administrative expenses also nose-dived by 0.23 and 14.10 per cent respectively.

 After operating for the first three months of the year, the company also saw its total comprehensive income for the year plunged by 31.40 per cent; from N8.026 billion in 2019 to N5.506billion in 2020. The company’s earnings per share also dropped 31.40 per cent; from 100 kobo in 2019 to 69kobo in 2020.

Sounding very sober, the company attempts to explain what is going on:

”The Covid-19 crisis continues to impact all businesses, with the effect expected to be more pronounced in the future. The priority for us is to protect the health, safety and welfare of our employees, customers, and partners, as well as support the Government and its agencies as they work to reduce the impact of the outbreak. At this stage, it is not possible to determine the financial impact of Covid-19 on our Company given the lack of visibility on the end date of the pandemic or on how long it would continue to impact the Nigerian economy. The Company has a strong Balance Sheet and the Board and Management are focusing on efforts to mitigate the impact on our business. ‘’

Reviewing the declared results further, analysts observe that NB Plc’s revenue from Nigeria, which accounts for 99 per cent of the firm’s total revenue, declined marginally by 0.4 per cent from N324.19 billion in 2018 to N322.81 billion in 2019. In the same vein, Profit after tax had fallen to N16.11 billion in 2019 down from NN19.44 billion in 2018.

Ordinarily, many believe that making a profit by manufacturers in troubling times is not easy. On that basis, NB Plc’s performance is not an entirely irregular one. However, BH research reveals that the problems of NB Plc did not start today. For instance, in the last five years overall, the company’s revenues have only recorded marginal growth while its profit before tax has plunged 57 per cent from N54.508billion in 2015 to N23.327billion in 2019.

Indeed, the breweries industry’s fortunes have been on the decline in recent years given the increase in the prices of their products. Also, the border closure policy of the government and the weak economy has challenged the industry. Most notably, the weak economy which has also reduced the purchasing power of consumers across the board has critically been to the disadvantage of the industry.

Assessing the overall picture, the Managing Director of HighCap Securities Limited, Mr David Adonri, reckons that the performance of Breweries and by extension, firms in the broader food and Beverages sector have indeed been dwindling.

He explained that the weak performance is an industry-wide phenomenon caused partly by low disposable income in the hands of consumers.  Consumer patterns have shifted for health and religious reasons to other beverages, he added.

Demographic data, as is particularly related to the nefarious activities of Boko Haram and herdsmen have crippled businesses in the North East and North Central. These have had negative implications for the brewery industry, especially NB Plc, the largest of the firms, which has now been most hit.

Adonri advised the company’s management to look at restructuring, cost-cutting and downsizing of the workforce to enable it to breathe better.

A shareholder activist, Mr Boniface Okezie, who also shares in the views of Mr Adonri reckons that the challenge is industry-wide which has been aggravated by recent events of the crash in the price of crude oil, even before the recent pandemic whose harsher effects will likely trickle down in the subsequent quarters of the year 2020.  He also reckoned that low priced alcoholic drinks are taking a huge chunk of the market share from the brewers.

Some observers sympathise with the manufacturing companies as they attribute their predicament to ill-advised government policies that have crippled manufacturers and allowed for only little wriggle 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 43 categories of imports conspired to make a bad situation worse.  The closing of the borders has also not been advantageous as some manufacturers are unable to export their products to bring down inventories.

It is commonly known that the Nigerian manufacturing industry is relatively small about the size of the domestic economy.  This owes to several challenges which include the neglect of the sector in favour of oil, and epileptic power supply situation and the country’s deficient infrastructure, among others.  However, the brewery industry has been growing relatively fast even when the economy is skewed.  There is also intense competition amongst all the operators. For instance, the Nigerian Breweries and Guinness Nigeria are long time competitors for market dominance.

Underscoring the fact that the company has continued to look for further space to boost its overall capacity, a notice signed by Uaboi Agbebaku had outlined in 2019:

“Nigerian Breweries Plc is pleased to inform The Nigerian Stock Exchange and the investing public of the continuation of its Commercial Paper programme with the launch of Series 3 and 4 of the programme which opened on the 24th of June, 2019. While Series 3 would be for a tenor of 91 days, Series 4 would be for 172 days, and the aim is to raise to N15 billion to support the company’s short terms funding needs.

“Earlier this year, the company had successfully concluded the Series 1 and 2 of its renewed N100 billion CP programme. In addition to providing an opportunity for non-equity investors to invest in the company, the CP programme continues to support the company’s cost management initiatives with the overall aim of reducing its cost of fund. The CP also serves as an additional source of funding for the company.”

Building further on this, Nigerian Breweries announced another series 5 and 6 of its commercial paper program in January 2020.

At the moment, Nigerian Breweries stock is still the most valued among its peers at N30.00 per share as of April 30, 2020.

Although 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 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.

Cumulatively, Nigerian Breweries has equally demonstrated over the years that it no doubt has one of the best rewarding stocks on the NSE. Over the years, investors have earned mouth-watering returns as has been anchored on its relatively excellent management and continued focus on boosting investments in the critical areas of product development and market expansion. It now remains to be seen if these are enough to see it through at an unusual time like this. We wait.