August 3, 2020/Cordros Report
NB published H1-20 results during last week’s holiday, reporting EPS decline of 57.3% y/y. For the three months ended June (Q2), EPS declined 98.4% y/y. EPS was impacted by lower revenue, weaker margins and higher finance costs.
Gross revenue declined by 21.0% y/y (H1-20: -10.8% y/y) in Q2, the largest decline on record, as volumes were negatively impacted by the imposition of lockdowns across major cities in Nigeria. There was significant demand destruction as on-trade sales channels (hotels, bars, restaurants, clubs, etc), which account for c.64.0% of beer industry sales, were effectively cut off as these businesses shut down operations during the quarter. Supply was also affected due to a COVID-19 induced ban on the distribution of alcoholic beverages for much of the quarter. On a quarter-on-quarter basis, net revenue declined 17.4%.
Gross profit margin printed 35.4% in Q2-20, 675bps lower than in Q2-19, and the weakest reading since Q3-18. The margin compression is indicative of (1) a slowdown of volumes in the premium segment amidst the disruption in on-trade sales, as well as (2) the inflationary impact on input costs – COGS was upwardly sticky, declining by only 8.1%, much slower than revenue.
Consequently, EBIT and EBITDA declined by 60.3% and 27.9% respectively, as the topline plunge offset the decline in marketing and distribution (-28.1%) and admin (1.9%) expenses. Notably, the OPEX-to-sales ratio declined marginally (-88bps) during the period, showing strong cost management and operational efficiency by the company. EBITDA margin also remained resilient, coming in at 19.6% (vs 21.4% in Q2-19 and 23.8% in Q1-20).
Elsewhere, net finance cost grew by 65.5% y/y, following a NGN59.86billion increase in bank overdrafts during the period. PBT declined by 99.1%. However, following a NGN14.15million tax credit during the period, PAT printed NGN84 million, representing a 98.4% decline.
Comment: NB’s performance expectedly reflects the challenging operating environment which is due to the COVID-19 pandemic. Following the relaxation of the lockdown and the imminent reopening of some on-trade channels, we expect a gradual recovery in H2. Our estimates are under review.
