Nigerian Breweries Plunges to Record Half-Year Loss Amid Forex Reforms

Nigerian Breweries Plc (NB) released its unaudited financial results for the second quarter of 2023, revealing a loss per share of NGN4.44 compared to the earnings per share of NGN0.64 in the same quarter of the previous year. This resulted in a half-year loss per share of NGN5.73 (compared to an earnings per share of NGN2.32 in H1-22). The disappointing financial performance was mainly attributed to a substantial increase in the net finance cost, which surged by 967.3% year-on-year during the reporting period.

Despite the challenging operating environment, NB managed to achieve a 13.0% year-on-year revenue growth in Q2-23, primarily driven by higher pricing, with a 20.1% year-on-year increase as per market observations, and the successful premiumization drive led by their brand Desperados. Additionally, the brewer’s revenue expanded by 24.9% on a quarter-on-quarter basis.

However, the revenue growth in the first half of 2023 was relatively subdued, showing only a 1.2% year-on-year increase, compared to the significant 31.0% year-on-year growth recorded in H1-22. The company faced challenges in Q1-23 due to price increases amid a cash crunch, negatively affecting revenue growth by -10.5% year-on-year.

Despite inflationary pressures on input costs, NB managed to improve its gross margin to 44.4% in Q2-23, a notable increase of 312 basis points compared to the same quarter in the previous year. This improvement was primarily driven by stronger revenue growth (+13.0% year-on-year) outpacing the increase in cost of sales (+7.0% year-on-year).

NB’s prudent cost management initiatives resulted in a 3.1% year-on-year decrease in operating expenses during Q2-23, contributing to higher EBIT and EBITDA margins, reaching 17.3% (compared to 9.0% in Q2-22) and 24.9% (compared to 16.0% in Q2-22), respectively.

The brewer’s net finance cost, however, saw a significant jump of 967.3% year-on-year to NGN76.90 billion, primarily driven by a 12.1x rise in FX losses, totaling NGN70.62 billion. This increase was a result of exposure to foreign currency-denominated payables, combined with higher finance costs (+228.6% year-on-year).

Overall, NB reported a loss before tax of NGN50.28 billion in Q2-23, in stark contrast to a profit before tax of NGN5.13 billion in Q2-22. After accounting for a NGN13.52 billion income tax expense, the loss after tax settled at NGN36.76 billion (compared to a profit after tax of NGN5.31 billion in Q2-22).

In light of the challenging economic environment, currency devaluation, cash crunch, weak purchasing power, and ongoing FX illiquidity were significant factors contributing to NB’s difficulties during this period. However, there is optimism for improved revenue growth in the coming quarters, as the brewer focuses on strong pricing strategies and continuous enhancement of its premiumization approach. Despite this positive outlook, the recent naira devaluation is expected to adversely impact the brewer’s earnings in the near term, and as a result, financial estimates are currently under review.

July 29, 2023