NB Plc products

By OBINNA EZUGWU

Recent months and years have not been the best of times for Nigeria top beer makers, namely, Nigeria Breweries Plc (NB), Anheuser-Busch InBev (AbInBev), owners of International Breweries (InterBrew) and Diageo Plc, owners of Guinness Nigeria. Profitability had continued to decline on account of shrinking market caused by rise in Pentecostal Christianity whose adherents mostly frown at alcoholic drinks, insurgency in the northeast which has cut off large segments of the market, among other reasons.
The companies have also had to contend with bloated operating costs such as induced by government’s new excise duty implemented in 2018, general economic downturn and importantly, heightened competition which has dissuaded price increases to meet emerging realities.
The outbreak of Coronavirus pandemic which led to shutting down of international travel, pubs, hotels and the banning of public gatherings, meaning that weddings, funerals and sundry social events were put on hold, has inevitably added to the beer troubles as recent results released by the major brewers have shown.
The second quarter of the year ended June 2020 felt heavy impact of the global pandemic, returning results that beer makers would not be in a hurry to forget. For the country’s largest brewer, NB which has in recent years seen its fortunes dwindle amid rising competition from the world’s largest beer makers, AbInBev through its Nigerian subsidiary, International Breweries, it is perhaps a predictable outcome. NB’s revenue for Q2 2020 dropped by 21 percent to close at N68.6 billion, meaning that margins were dealt a blow.
But the leading brewer which still controls over 50 percent of country’s market share still managed to draw water out of the rock, squeezing out N70 million in profit before tax, which is a positive, even if it pales into insignificance when compared with the N7.9 billion reported for the same period in 2019 and N12.3 billion in 2018.
Yet, compared to the first quarter 2020 result ended March 30, just before the Coronavirus lock downs took hold, during which period it made N83.2 billion in net revenue, same as it did in the same quarter of 2019, the second quarter which ideally returns better tidings than the first for beer makers because during the first months of the year, things are usually slow after December festivities, is in a sense, a wipe out.
Again, though NB’s profit before tax for the first quarter at N8.2 billion, which came down 27.7 percent from N11.4 billion in Q1 2019, is a low, but still reasonable compared to the paltry PBT of N70 million reported in the second quarter. Profit after tax for the first quarter had also come in at N5.5 billion down 31.4 percent from N8 billion reported in 2019, while earnings per share for the period, both basic and diluted, declined to 69 kobo from 100 kobo in Q1 2019.
“It is not surprising that the brewery industry is struggling,” noted Dr. Boniface Chizea, CEO, BIC Consultancy Services. “I mean, the effect of the pandemic has been devastating and it’s still very much with us. I don’t know of any industry that is doing well now, maybe the banks to an extent, but generally everyone is struggling.”
While the pandemic hit NB hard, it hit International Breweries perhaps even harder, leaving it on the brink. Though the company has been rapidly expanding its foothold in the country’s beer market, with brands such as Trophy and Hero outperforming NB’s brands in the value category, but cost has always ensured that its performance in the market keeps the balance sheet in the negative.
In May, analysts at WSTC Securities Limited advised investors to dump the company’s stock, noting that the company had not been able to make profit in three consecutive years.
Compounded by the pandemic, things have gotten much worse. In Q2, 2020, InterBrew saw 24 percent or N12.7 billion drop in revenue to N25.2 billion from the N33.5 billion in the same period of 2019. This also represents 28.5 percent drop from Q1 2020.
Yet, the real trouble is that statement of cash flow for H1 2020 reveals that operations accounted for only 5 percent of cash inflow, 0.8 percent from investing activities and over 90 percent representing N162 billion from financing activities particularly rights issues.
The company’s gross profit also plunged to N3.6 billion from N5.7 billion in the corresponding period of 2019. Loss before tax stood at N4.2 billion higher than the N2.8 billion loss reported in 2019. Still, the company posted N9 billion loss for items that may be classified as profit or loss, which then brought its total loss for the period to N12.7 billion.
This, regardless of the fact that the lock down brought the cost of sales to N21.8 billion from N27.7 billion, while administrative cost also came down to N5.9 billion from N6.2 billion in 2019. Notably, the company cut spending on promotional activities by half.
Guinness on the other hand, is yet to release its quarter ending June 2020 results which happens to be its year-end, but has already warned its public about what’s coming. Ahead of the year end results release few days ago, the company hinted at expecting the worst. Guinness Nigeria Plc, on Wednesday, informed the public in a statement to the Nigerian Stock Exchange, about the material circumstances that will impact its full-year financial results for 2020.
“The adverse impact of the sharp contraction in economic activities and the knock-on effect of the COVID-19 lockdown took a toll on the on-trade segment of the business across all our markets. Production and revenues have thus been negatively affected,” the company said in a statement posted on the Nigerian Stock Exchange website.
“Guinness Nigeria carried out a comprehensive review of its asset base and made a strategic decision to impair a certain category of assets, which were generating suboptimal returns. This is in line with the company’s long-term strategy of delivering value to shareholders.
“Due to a combination of the impact of COVID-19 and the asset impairment, we expect the profitability of the Company for the Financial Year to 30th June 2020 to be impacted. The Company’s balance sheet however remains strong, and this gives the Board the confidence that the Company has the right resources to continue to deliver the strategy.”
Meanwhile, its Q3 2020 results for the period ended March 31st, 2020 which saw revenue decline -5.3% to N96 billion from N101 billion the previous quarter is already an indicator.
The results show that the Company’s profit after tax declined by 68 percent to N1.4 billion, Profit before tax declined by 67.9 percent to N2 billion while net came down by 2.2 percent to N87.1 billion from N89.1 billion.
“In the 3 months ended 31 March 2020, Guinness Nigeria revenue declined 5% compared to same period last year on the back of volume decline driven by the price increases that we took in the quarter and the initial impact of COVID-19. Revenue for the year to date continues to be impacted by excise duty increases which prior to February were not covered by price. We remain confident however, that the underlying performance of our main strategic focus brands categories – Guinness, Malta Guinness, RTDs and spirits – remains solid,” Mr. Baker Magunda, Managing Director/CEO, Guinness Nigeria Plc had said of the result.
“I am however pleased by the work we are doing on productivity. Despite Nigeria inflation rate at 12%, our cost of sales declined at a faster rate of 7% compared to revenue and therefore improving our year to date gross margin to 32%. Similar productivity initiatives mean that the increases in distribution expenses by 2% and the administration expenses by 7% are still below inflation.
“We also boosted our marketing spend by 6% to support our brands. The operating profit declined by N2.1bn. The recent depreciation of the Naira drove the increase in finance costs by N2.1b year on year, impacting profit delivery”.
“Our business was impacted in the last half of March by the COVID-19 outbreak. This has also proven to be an economic crisis significantly impacting most businesses including ours, as much as it is a health crisis. As a proud business with 70 years heritage here, we stand with Nigeria by aligning with the efforts of the Federal and State governments to stop spread the virus across the country.
“We have made donations of hand sanitisers as well as provided non-alcoholic drinks to the Nigeria Center for Disease Control (NCDC), the Federal Ministry of Humanitarian Affairs, Disaster Management and Social Development and several states in Nigeria. These materials are to support frontline health workers and security officers as they work tirelessly to curtail the spread of the virus, as well as to provide relief to vulnerable groups in various communities in Nigeria”.
The company’s board chairman, Mr. Babatunde Savage had also noted that, “The Board is confident that our strategy is sound and that we are making the right investments in the company to ensure our long term competitiveness. We will continue to support the management in its efforts to build a business that aims to consistently deliver growth for stakeholders.
“The Board however notes that the COVID-19 pandemic that has led to nationwide restrictions will continue to have an impact on the operations of the business in the current financial year. Both the Board and Management are closely monitoring the evolving situation and continue to be agile and take actions to protect the business.”