FSDH Initial Reaction: Nigerian Breweries 3Q22 results 
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October 31, 2022/FSDH Research

Key Performance Highlights:

• Nigerian Breweries reported a strong 19.3% YoY revenue growth to N119.4 billion in 3Q22. The cost of sales jumped 24.0% YoY to N83.6 billion in 3Q22, compared to N67.4 billion in 2Q21, as the prices of raw materials and consumables soared 23.3% YoY to N59.6 billion due to rising commodity prices. Consequently, the gross margin contracted by 262 bps YoY to 30.0% in 3Q22. The company’s performance in 3Q22 was largely affected by rising costs as Nigerian Breweries reported a net loss of N4.0 billion compared to a net profit of N498 million in 3Q21, despite strong double-digit revenue growth and a 90.5% YoY rise in other income.
   
• The marketing and distribution expenses climbed 33.5% YoY to N30.6 billion in 3Q22 compared to N22.9 billion in 3Q21, while the administrative expenses rose 19.5% YoY to N6.2 billion in 3Q22, mainly driven by the increased input costs. Although the finance income vaulted 471.1% YoY to N30 million in 3Q22 compared to N5 million in 3Q21, the finance costs increased 8.5% YoY to N3.1 billion in 3Q22, up from N2.9 billion in 3Q21. Moreover, the company’s net loss on foreign transactions ballooned 163.5% YoY to N3.1 billion. Ultimately, the company incurred net finance costs of N6.2 billion in 3Q22, up 53.0% YoY compared to the prior period.
   
• In 3Q22, Nigerian Breweries reported a loss before tax at N6.6 billion compared to a profit before tax of N797 million in the prior period. The company reported an income tax credit of N2.6 billion in 3Q22 compared to N299 million in income tax expenses in the prior period. Consequently, the company reported a net loss of N4.0 billion in 3Q22 compared net profit of N498 million in 3Q21, with the net profit margin declining 384 bps. Nigerian Breweries reported a loss per share of N0.49 in 3Q22 versus earnings per share of N0.06 in 3Q21.
   
• On a sequential basis, Nigerian Breweries recorded a decline of 12.4% QoQ to N119.4 billion in revenue for 3Q22, compared to N136.3 billion in 2Q22. However, the cost of sales continued to increase by 4.4% QoQ in 3Q22, resulting in a 36.4% QoQ decrease in gross profit to N36.0 billion against N56.3 billion in 2Q22. Furthermore, the other income decreased 55.6% QoQ to N506 million in 3Q22 from N1.1 billion in 2Q22. In 3Q22, net finance costs declined by 14.3% to N6.2 billion compared to N7.2 billion in 2Q22. The decline in revenue and increase in the cost of sales percolated down as the company reported a net loss of N4.0 billion in 3Q22 as against a net profit of N5.1 billion in 2Q22.
   
• The company’s margins contracted on a YoY and sequential basis. The company reported a gross margin of 30.0% in 3Q22 (-262 bps YoY, -1130 bps QoQ), an operating margin of -0.4% in 3Q22 (-520 bps YoY, -927 bps QoQ), while the net margin came in at -3.3% (-384 bps YoY, -710 bps QoQ).
   
• On 26 October, Nigerian Breweries announced an interim dividend of 40 kobos per share (3Q21: 40 kobos per share). The interim dividend will become payable on 1 December 2022, subject to appropriate withholding tax, to all shareholders registered in the company’s books at the close of business on 23 November 2022.

Market Reaction: Investor’s reaction to 3Q22 results was positive as the Nigerian Breweries stock closed 0.12% higher at N41.85, versus a 0.52% loss for the All-Share Index (27/10).

Nigerian Breweries Earnings Highlight 3Q22

Source: Company Financials, FSDH