February 27, 2023/FSDH Research

FSDH Initial Reaction: Nigerian Breweries FY22 results 
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Key Performance Highlights:

• Nigerian Breweries reported a solid result for FY22. The company reported a robust 25.9% YoY revenue growth in FY22 on the back of a robust YoY rise in 9M22 revenues, while the net profit witnessed marginal growth. The revenue came in at N550.6 billion in FY22 as against N437.3 billion a year before, mainly due to brand mix improvements and strong pricing. It is worth noting that the sequential revenue growth was 31.7% to N157.2 billion in 4Q22. Despite the cost of sales jumping 21.8% YoY to N337.3 billion due to naira devaluation and rising inflation, with the total market decreasing by a high single-digit (reflecting pressure on consumer disposable income). Nigerian Breweries managed to outperform the market with its strong premium portfolio and reported gross margin expansion of 206 bps to 38.7% in FY22.
   
• The company’s other income fell 35.4% YoY from N4.6 billion in FY21 to N3.0 billion in FY22, mainly due to a decline in gain on right-of-use derecognition. The marketing and distribution expenses climbed 38.1% YoY to N135.8 billion, and the administrative expenses rose 7.3% YoY to N28.2 billion in FY22, mainly driven by inflation, devaluation of the naira and high energy prices. The finance income grew 11.4% YoY to N349 million in FY22 compared to N314 million in FY21, while the finance costs decreased 23.9% YoY to N8.4 billion in FY22, down from N11.1 billion in FY21 due to lower interest expense on leases. However, the company’s net loss on foreign transactions ballooned 274.1% YoY to N26.3 billion in FY22. Consequently, the company incurred net finance costs of N34.4 billion in FY22, up 93.4% YoY compared to the prior period.
   
• In FY22, the company reported a 26.8% YoY decline in the profit before income tax. However, a lower effective tax rate of 24.0% in FY22, down from 47.0% in FY21, helped Nigerian Breweries to report a net profit of N13.2 billion in FY22, up 4.1% YoY compared to N12.7 billion in FY21, while the net profit margin declined 50 bps. Nigerian Breweries reported earnings per share of N1.58 in FY22 versus earnings per share of N1.57 in FY21. The company declared a dividend of 143 kobos per share (inclusive of an interim dividend of 40 kobos per share declared in October 2022). The proposed final dividend of 103 kobos per share will become payable on 26 April 2023, subject to appropriate withholding tax, to all shareholders registered in the company’s books at the close of business on 16 March 2023.
   
• Looking at the quarterly performance, Nigerian Breweries recorded robust revenue growth as the company’s revenue shot up 22.8% YoY to N157.2 billion in 4Q22. However, this growth was negated by a more than proportionate increase in the cost of sales of 25.9% YoY. With a significant 19.1% YoY rise in selling and distribution expenses to N34.8 billion, the company’s operating profit fell 2.3% YoY to N16.4 billion in 4Q22. The company’s net loss on foreign transactions jumped 5x to N16.0 billion, and finance income declined 58.6% YoY to N91 million in 4Q22, which resulted in a 212.8% YoY rise in the net finance cost to N18.1 billion. Consequently, Nigerian Breweries reported a loss before tax of N1.8 billion in 4Q22, compared to a profit before tax of N11.0 billion in the prior period. Helped to some extent by tax credit, the company reported a net loss of N1.6 billion in 4Q22 compared to a net profit of N4.5 billion in 4Q21. Furthermore, the margins took a hit in 4Q22, with the EBITDA and Net margin declining 448 bps each, while the Operating margin and Gross margin declined by 268 bps 156 bps, respectively.
   
• On 11 January 2023, Nigerian Breweries opened the series 1, 2, and 3 commercial paper issuances under the company’s N100 billion commercial paper programme, intending to raise up to N20 billion to support its short-term funding needs.
   
• On 17 November 2022, Nigerian Breweries announced a bonus issue of shares at a 1:4 ratio (1 new share for every 4 shares) to shareholders registered in the company’s books at the close of business on 6 December 2022.

Market Reaction: Investor’s reaction to FY22 results was subdued as the Nigerian Breweries stock closed 1.19% lower at N41.50 versus a 0.55% gain for the All-Share Index (24/2).

Nigerian Breweries Earnings Highlight FY22

Source: Company Financials, FSDH