Nigeria Breweries rebounds, surprises investors with 104% growth in PBT

OKEY ONYENWEAKU

Success has a way of encouraging people to keep their eyes on the ball and push for better results. This was evidently not the case with Nigeria Breweries PLC two years ago when their profit before tax dipped by over 50% at the close of business in December 2020.

But the narrative surprisingly changed at the year-end 2021. Hurray! The company recorded a profit of over 71%. Details show that the Company’s profit for the period under review grew by 71.8%, rising from N7.525 billion in 2020 to N12.927 billion in 2021.

Its group recorded a profit of N23.701billion in 2021, representing 104% growth from the N11.55billion achieved in 2020.

The company closed the year with revenue growth of 29% increase to N437.196billion in 2021 from N337.006billion in 2022.

In a statement signed by the Company Secretary/Legal Director, Uaboi Agbebaku, he said the Board of Directors commended the management for placing the Company on the path to recovery from the debilitating impact of the COVID-19 pandemic and other challenges faced during the year.

The Board would be recommending to shareholders at the forthcoming Annual General Meeting (AGM) the declaration of a total dividend of ₦12.921billion at 50k per share, representing a 100% dividend payout ratio.

Recall that the Company had earlier in October 2021, paid an interim dividend of ₦3.230billion which translated to 40k per share. The final proposed dividend of ₦9.69billion at ₦1.20k per share will be payable to shareholders upon approval on 25 April 2022.

The statement further noted that only qualifying shareholders whose names appear on the Company’s Register of Members at the close of business on 9 March 2022 will be paid the final dividend. The statement noted that the Board would also recommend shareholders for their approval at the forthcoming AGM, a right of election for Qualifying Shareholders to receive new ordinary shares in the Company instead of the final dividend in cash.

Agbebaku revealed that the Company remains committed to delivering improved performance in the years ahead. It would also continue to deploy cost-efficient measures to keep its balance sheet strong and healthy while ensuring that the safety and welfare of its employees, customers, and partners remain well protected.

The Beer maker, said its 2020 pretax profit for the full year ended December 31 2020 declined -50.43 percent to N11.6 billion from N23.4billion recorded a year earlier.

Post-tax profit for the review period also dipped 54.25 percent to N7.4 billion from N16.1 billion in the same period of 2019.

Gross profit also depreciated 9.6 percent to N118.7 billion from N131.2 billion posted the corresponding period of 2019.

However, the revenues of the brewer only grew slightly from N323.0 billion in 2019 end to N337.0 billion in the review period of 2020; indicating a growth of 4.35 percent, the brewing giant had said.

There have been a mixed performance in the company in the last five years from 2017 to 2021. For instance, while its revenues grew by 48% from N344.5billion in 2017 to N437.195billion in 2021, its profit before tax slid by 48.617% from N46.572billion in 2017 to N23.929 billion in 2021. In the same vein, Net asset dropped by 3.02% from N178.298billion in 2017 to N172.912billion in 2021. Earnings per share also fell by 61% from 413kobo in 2017 to 161kobo in 2021 as its stock price closed at N48.00 per share as at Thursday February 24, 2022.

Afrinvest research in 2020 revealed that;
‘’The resilience of players in the Nigerian brewery industry was further tested in 2020, as the spill-over effect of the pandemic amplified the impacts of structural challenges besetting the industry’s operating environment. Before 2014, the major talking point on the industry’s operating environment was the increased attraction of global players such as Heineken and SAB-Miller, due to years of strong industry profitability performance. For instance, between 2006 and 2014, the industry’s gross and EBITDA margins averaged 47.0% and 26.0% respectively. This was made possible by the impressive performance of the broader economy, as annual real GDP growth averaged 6.4% over this period, while the exchange rate (N141.35/$1.00), the inflation (10.1%) and the unemployment rates (12.1%) supported strong purchasing power of consumers.

‘’However, this trend began to reverse in 2015 when the global crude oil price shock exposed Nigeria’s years of economic mismanagement and external vulnerability. By the end of 2019, the real GDP, the exchange rate, the inflation, and the unemployment rates have deteriorated to 2.2%, N306.00/$1.00, 11.4% and 21.3% respectively. Furthermore, industry’s gross margin and EBITDA margin fell to 33.5% and 11.6% respectively, due jointly to weak growth in consumer demand and accelerated increase of cost lines. Following additional pressure on sales channels in 2020 due to lockdown measures employed to tame the spread of the pandemic (especially in major commercial cities) and high Inflation rate (average: 13.2%), the industry’s gross margin and EBITDA margin fell further to 31.6% and 6.6% respectively in 2020.

‘’In FY:2020, the brewing industry witnessed a rebalancing of market share controlled by the three industry leaders – NB, GUINNESS, and INTBREW, with a combined 98.9% share of industry revenue. Despite the impact of the pandemic and the limited scope for price adjustment to capture recent cost pressures, NBand INTBREW grew market share by 3.1% and 1.1% y/y to 57.7% and 23.4% respectively, while GUINNESS lost 4.3%. Consequently, NB’s market share crossed 55.0% for the first time since 2017, while INTBREW’s clearly established itself as the second biggest player ahead of GUINNESS. We also noticed that unlike in the previous three years where each of the brewers rolled out a new product or developed a variant of an existing brand, only NB expanded its portfolio in 2020 to meet shifting consumer preference and boost market penetration.

‘’Nevertheless, the industry’s profitability declined further in 2020 relative to prior year. Precisely, the industry’s profit before tax (PBT) settled at a negative N30.4bn (2019: negative N5.7bn), as GUINNESS and INTBREW booked losses of N17.1bn and N24.9bn respectively. However, NB reported N11.8bn PBT in 2020, but this translates to a 50.4 y/y reduction compared to the prior year’s PBT of N23.4bn.’’
Analysts also believe 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 is yet to ease out completely as fears linger that Covid-19 will remain with for long. This was 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. But this changed this year as the company’s pre-tax grew 104% in 2021.
Like some other analysts, FSDH observed the pressure in the operating system. The firm said that the challenging business environment, an increase in the rate of excise duty, increased competition from incumbent operator, 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.

For the Managing Director of HighCap Securities limited, Mr. David Adonri, who spoke to Business Hallmark, the weak performance was not unexpected based on the volatile operating environment in Nigeria.

Adonri explained that 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 are also the added threats 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 many millions of naira at intervals.

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.

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.

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 it’s got going forward.