FSDH Initial Reaction: Nigerian Breweries 2Q22 results 
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August 2, 2022/FSDH Research

Key Performance Highlights:

• Nigerian Breweries reported a solid 31.6% YoY revenue growth to N136.3 billion in 2Q22. The cost of sales jumped 20.2% YoY to N80.0 billion in 2Q22, compared to N66.56 billion in 2Q21. The prices of raw materials and consumables increased 24.0% YoY to N57.5 billion due to rising commodity prices. This resulted in the gross margin expanding by 554 bps YoY to 41.3% in 2Q22. The company’s performance in 2Q22 was superb as its profit jumped 78.4x YoY, owing to strong double-digit revenue growth and a 338% YoY rise in other income.
   
• The marketing and distribution expenses jumped 52.1% YoY to N38.3 billion in 2Q22 compared to N25.2 billion in 2Q21, while the administrative expenses climbed 5.2% YoY to N6.7 billion in 2Q22, mainly driven by the increase in commercial activities, rising diesel prices and higher wages arising from collective labor agreements. The finance income grew 141.8% YoY to N155 million in 2Q22 compared to N64 million in 2Q21, while the finance costs declined 21.0% YoY to N1.9 billion in 2Q22. The company incurred a net loss on foreign transactions of N5.4 billion, increasing 106.2% YoY in 2Q22. The net finance cost was higher due to foreign exchange losses arising from a higher cost of meeting foreign obligations to overseas partners.
   
• Nigerian Breweries reported a profit before tax at N4.9 billion compared to N426 million in the prior year, an 11.6x fold jump. The company reported an income tax credit of N195 million in 2Q22 compared to an N361 income tax expense in 2Q21. Consequently, the company reported a net profit of N5.1 billion in 2Q22 compared to N65 million in 2Q21, with the net profit margin expanding 370 bps to 3.8% in 2Q22 from 0.1% in 2Q21. Nigerian Breweries reported earnings per share of N0.64 in 2Q22 versus N0.01 in 2Q21.
   
• On a sequential basis, Nigerian Breweries recorded a marginal decline of 1.1% QoQ to N136.3 billion in revenue for 2Q22, compared to N137.7 billion in 1Q22. The cost of sales increased by 6.3% QoQ in 2Q22, resulting in a 9.9% QoQ decrease in gross profit to N56.3 billion as against N62.4 billion in 1Q22. Furthermore, the other income has risen 32.7% QoQ to N1141 million from N859 million in 1Q22. Net Finance costs jumped significantly by 142.5% to N7.2 billion in 2Q22. The marginal decline in revenue, increase in the cost of sales, and a rise in finance cost percolated down as the Net Profit decreased 62.3% QoQ to N5.1 billion in 2Q22 versus N13.6 billion in 1Q22.
   
• The company’s margins expanded on a YoY basis but were subdued sequentially. The company reported a gross margin of 41.3% in 2Q22 (+554 bps YoY, -404 bps QoQ), an operating margin of 8.9% in 2Q22 (+365 bps YoY, -833 bps QoQ), while the net margin came in at 3.8% (+370 bps YoY, -612 bps QoQ).

Market Reaction: Investor reaction to blockbuster 2Q22 results was muted as the Nigerian Breweries stock closed flat at N47.70, versus a 1.42% gain for the All-Share Index (29/7). Moreover, the stock closed unchanged at N47.70 on Monday (1/8) versus a 0.83% fall in the All-Share Index.

Nigerian Breweries Earnings Highlight 2Q22

Source: Company Financials, FSDH