Mixed fortunes for Nigerian Breweries Plc as the Brewery sector moribunds

Nigerian Breweries Plc is the pioneer brewing company in Nigeria. They are in the business of beer brewing, marketing and selling of alcoholic beverages and are responsible for a host of drinks that have flooded the Nigerian market, for example, the Star Lager, Guilder, Stout, Goldberg, 33, Ace-root, Radler and many others

Analysis of Half-year results from different brewing companies have revealed that the entire sector in Nigeria may be moribund. Many companies posted a loss with few others grateful to breakeven.

However, the brewery company giants seem to have witnessed better realities when analysed side by side with any of its competitors. In H1 2020, Nigerian Breweries Plc experienced an 11% reduction in revenue. Dropping from N170B in 2019 to N151B in 2020 but were still able to close their book with a profit.

Q1 and Q2 presented mixed fortunes, with Q2 particularly unpalatable. The net profit margin in Q2 stands at 0.1% as against Q1 at 6.6%. Whilst other expenditures accounted for immaterial differences, there was a notable spike in finance cost in Q2. It increased by N1.5B from Q1. The implication is that more debts had been incurred as shown is the jump in loans and borrowing under the Current and Non-Current Liabilities, from N20B in Q1 to N26B in Q2 and N78B in Q1 to N112B as at the end of Q2 respectively. This takes its toll on the Q2 PAT figure generating just N83.9million compared to Q1 PAT of N5.5billion representing a colossal 98% decline. Rising finance cost is not solely responsible for this; a decreased gross profit margin from 41.9% in Q1 to 35.2% in Q2 also reflects a worsened ‘revenue to cost of sales’ relationship in Q2.

The COVID-19 pandemic has hugely been responsible for the poor turnover recorded by brewery companies around the country. The lockdown initiated to manage and contain the virus spread in a bid to preserve lives, unfortunately, have had severe repercussions for these businesses, it has all but signed their death sentence, sales have plummeted and will make little improvements in subsequent quarters if a strategy isn’t devised to market the products and improve sales whether or not the lockdown is relaxed fully.

Nigerian Breweries Plc recorded a negative of N1.1B in cash generated from operations in Q1. Despite the H1 result showing improvements to the tune of N9.4B, the Brewery Company must strive to always maintain a positive net cash flow from operations in the ensuing quarters. Businesses can generate cash from multifarious avenues, whether through returns on investments (ROI), financing activities, etc., it almost always signifies doomsday if a company consistently fails to generate actual cash from its primary operations and always have to be cushioned by its ROI. Many investors frown at this.

Overall, Nigerian Breweries has a strong balance sheet of about N430 billion. It is not highly geared and increasingly makes investments in CAPEX. During the six-month period ended 30th June 2020, the Company acquired plant and equipment with a cost of N14.6 billion (six-month period ended 30th June 2019: N11.7 billion).

Effects of the pandemic are still evident, but it seems very likely that Nigerian Breweries survives this severely trying time for the industry even if others may not.

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