NB Plc products

By Okey Onyenweaku

The tough operating environment caused by harsh macro-economic challenges in the country may have started taking a toll on the performance of quoted companies. This is even as the ravaging effect of Covid-19 takes most of the blame in the short term. This has been reflected in the result of the giant brewer, Nigerian Breweries Plc whose profit before tax declined by 49.8 per cent and post-tax of 53.3 per cent for the period ended December 31, 2020.

The 2020 results of the company which was recently released by its management to the public tells clear stories of challenging times. Five years ago, the Nigerian Breweries Plc would have boasted of strong performance and good dividends. But that has changed.

The leading brewer posted a growth of 4.5 per cent in revenue, but the challenging effects of rising inflation, impact of weak naira, shut downs caused by Covid-19 and insecurity drove down its bottom-line.

Details show the company recorded a revenue of N337.006 billion in 2020, up from N323.002billion in 2019. Cost of sale rose from N191.756 billion to N218.355 billion. Its Marketing and distribution expenses was moderated however.

The company was able to bring down administrative expenses while finance cost increased by 53 per cent from N11.853billion to N18.028billion.
Despite this overly weak performance, Nigerian Breweries Plc is set to reward shareholders of the company with N5.52 billion as dividend for the period ended 31st December 2020, representing 69 kobo per share.

Recall that the Company had earlier in 2020, paid an interim dividend of N1.999 billion which translated to N0.25k per share. The final proposed dividend of N5.52billion at N0.69k per share will be payable to shareholders upon approval on 23 April 2021.

The company had in a statement noted that only qualifying shareholders whose names appear on the Company’s Register of Members at the close of business on 10 March 2021 will be paid the final dividend. Directors would also be recommending to Shareholders for their approval at the forthcoming AGM, a right of election for qualifying shareholders to receive new ordinary shares in the Company as against the final dividend in cash.

Despite the negative impact on its operations, it is noteworthy that Nigerian Breweries made various donations in cash and kind valued at about N531 million out of a phased commitment of N600 million to the Federal and 7 State Governments’ COVID-19 Task Forces Relief Funds. The Board of Directors expressed confidence that the Company is well-positioned to continue to deliver return on investment to Shareholders. The statement adds that the company remains committed to not only keeping its balance sheet strong but ensuring that the health

However, stakeholders have become uncomfortable with the declining trend of the company’s performance.
The last four years NB Plc’s profits have been on the plunge. It has plunged by 74.57 per cent from 2017 TO 2020. For instance, its profit before tax dropped 36 per cent from N46.5 billion in 2017 to N29.3billion in 2018. The company’s PBT further dropped 20 per cent from N29.35billion in 2018 to N23.32billion in 2019 and further dropped 49.8 per cent from 2019 to N11.70 billion in 2010.

Its net assets have also plunged in the last four years by 9.54 per cent from N178.150billion in 2017 to N161.150 billion in 2020. Both earnings per share and dividend pay out have also dropped significantly. While earnings dropped from 413 kobo in 2017 to 92 kobo in 2020, declared dividend also dropped 358 per share in 2017 to 176 kobo in 2020.

Like some other analysts, FSDH observed the pressure. The firm said that the challenging business environment, an increase in the rate of excise duty, increased competition from incumbent operator, Guinness Nigeria, weak consumer purchasing power and the new industry challenger, Anheuser-Busch InBev reduced the market share of NB and increased its cost of operations.

“The company contracted new borrowing in order to finance its business operations during the year. We noticed an increase in NB’s trade receivables, a strategy to encourage its distributors to carry more of its goods but also an indication of difficulties in converting sales to cash”, FSDH said.

Managing Director, Crane Securities ltd, Mr. Mike Ezeh told Business Hallmark that Nigerian Breweries Plc performed according to the dictates of the unfavourable operating environment.

“The weak performance of the company can be attributed to what is happening in the system. You know they are a consumer based company and if the per capita income and the GDP is dropping you cannot expect otherwise’’ said Mike Ezeh.

For the Managing Director of HighCap Securities limited, Mr. David Adonri, he told Business Hallmark in a telephone interview, that the weak performance was not unexpected based on the volatile operating environment in Nigeria.

Adonri explained that the lockdown as a result of Covi-19, insecurity in the North, religious onslaught against their products were enough to push down a company’s performance. That is what has happened to Nigerian Breweries.
Adonri however, said there was hope for a rebound given the opening up of the economy, hope of the coming vaccine, gradual return and opening up of the hospitality industry.

However, some market observers have praised the performance of the company as good in a weak economy and an unfriendly operating environment.
In fact, some observers sympathise with the manufacturing companies as they attribute their predicament to ill-advised government policies that have crippled manufacturers and allowed 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 some categories of imports conspired to make a bad situation worse as the manufacturing companies had to seek foreign exchange from the parallel market.

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. There is also intense competition among operators. For instance, the Nigerian Breweries and Guinness Nigeria are long time competitors for market dominance.

There is also the threat of insecurity and religious challenges which prevents them from selling their products in some parts of the Northern Nigeria where the Islamic police called HISBAH destroy goods worth multi-millions.

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 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.
Before now, the leading Brewing Company’s dividend history has been quite impressive with many noting that 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 and 358kobo in 2016, 413kobo in 2017, 243 kobo in 2018, 201 kobo in 2019 and 94kobo in 2020.By the records, the company has rewarded shareholders better than many other firms listed on the Nigerian Stock Exchange.

Going forward, NB has implemented certain strategies to maintain its market leadership despite the shrinking market size. These measures include continuous product innovation leading to development of value products to take a share of consumers’ wallets, investment in route-to-market, introduction of a suppliers’ finance scheme – with benefits of extended payment terms and quick access to cash for suppliers. Following the merger with Consolidated Breweries effective December 2014, parent company, Heineken maintains a 52% controlling stake in the larger entity.
This notwithstanding, the company’s stock has been resilient since last year.

However, it is interesting that the stock has returned 17.71 per cent year on year at the price of N52.00 per share as at February 26, 2021. 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 not impressive may not affect its stock significantly given the relatively strong disposition of the market.

Nigerian Breweries Plc, incorporated in 1946, is the pioneer and largest brewing company in Nigeria. Its first bottle of beer, STAR Lager, rolled off the bottling lines of its Lagos Brewery in June 1949. Other breweries were subsequently commissioned by the company, including Aba Brewery in 1957, Kaduna Brewery in 1963, and Ibadan Brewery in 1982. In September 1993, the company acquired its fifth brewery in Enugu state, and in October 2003, its sixth brewery, sited at Ama in Enugu. Ama Brewery is the largest brewery in Nigeria and one of the most modern worldwide. Operations at Enugu brewery were discontinued in 2004, while the company acquired a malting Plant in Aba in 2008.
What did that other analyst say: ‘tough times don’t last, it is tough people that do. NB Plc surely has to demonstrate what its got going forward.