FSDH Initial Reaction: Nigerian Breweries 1Q23 results 
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April 28, 2023/FSDH Research

Key Performance Highlights:

• Nigerian Breweries reported a 10.5% YoY revenue decline to N123.3 billion in 1Q23 against N137.8 billion in 1Q22, primarily due to the challenging operating environment. The impact of the cash crunch led to a near collapse of payment channels, and the security uncertainties associated with the general elections created economic disruptions. These were in addition to the ongoing headwinds of inflationary pressure impacting purchasing power, input cost, and operating expenses. According to the company, the total brewed product market suffered a double-digit (mid-twenties) volume decline in 1Q23 versus the same period in 2022.
• The company’s other income fell 58.5% YoY from N859 million in 1Q22 to N356 million in 1Q23. The selling and distribution expenses were up 3.4% YoY to N33.7 billion, and the administrative expenses rose 9.0% YoY to N8.2 billion in 1Q23, mainly driven by increased employee benefits and distribution costs. The finance income declined by 45.8% YoY to N40 million in 1Q23 compared to N74 million in 1Q22. In contrast, the finance costs increased significantly by 4.1x YoY to N4.7 billion in 1Q23, from N1.2 billion in 1Q22 due to higher interest expense on leases. Additionally, the company’s foreign exchange losses ballooned 7.8x YoY to N14.6 billion in 1Q23. Consequently, the company incurred net finance costs of N19.3 billion in 1Q23, up 6.5x YoY compared to the prior period.
• In 1Q23, the company reported a loss before income tax of N17.4 billion versus a profit before income tax of N20.7 billion in 1Q22, mainly due to lower sales and one-off reorganisation costs, which affected the operating profit. Although the company benefited from an income tax credit of N6.7 billion, it still reported a net loss of N10.7 billion in 1Q23, compared to a net profit of N13.6 billion in 1Q22. Nigerian Breweries reported a loss per share of N1.29 in 1Q23 versus earnings per share of N1.69 in 1Q22.
• Sequentially, Nigerian Breweries’ revenue declined by 21.6% QoQ to N123.3 billion in 1Q23. However, this decline was partially offset by a 19.3% decrease in the cost of sales QoQ. Although there was a slight 3.2% QoQ fall in selling and distribution expenses to N33.7 billion, the fall in other income and rise in administrative expenses led to the company’s operating profit declining by 88.5% QoQ to N1.9 billion in 1Q23. The company’s net loss on financial assets was down 23.2% to N442 million, and finance income declined 56.0% QoQ to N40 million in 1Q23, while the finance cost jumped 2.1x QoQ. Consequently, Nigerian Breweries reported a loss before tax of N17.4 billion in 1Q23, compared to a loss before tax of N1.8 billion in 4Q22. Helped to some extent by tax credit, the company reported a net loss of N10.7 billion in 1Q23 compared to a net loss of N1.6 billion in 4Q22.
• The company’s margins took a hit in 1Q23, with the EBITDA margin declining by 1291 bps YoY, while the Operating margin and Gross margin fell YoY by 1569 bps and 974 bps, respectively.
• On 25 April 2023, the Board accepted a retirement notice from Chief Kolawole B. Jamodu, CFR. Following the notice, Chief Jamodu will be retiring from the Board and as the Chairman of the Board on 30 April 2023. In line with the Board’s succession plan, the company appointed Mr. Asue Ighodalo as Non-Executive Chairman, effective 1 May 2023. Moreover, Nigerian Breweries has appointed Mr. Ayodele Lawal as the Sales Director and a member of the Management Team, effective 1 May 2023. Mr. Lawal replaced Mr. Uche Unigwe, who retired from the company.Source: Company Financials, FSDH

Market Reaction: Investor’s reaction to 1Q23 results was subdued as the Nigerian Breweries stock closed 10.00% lower at N32.85 versus a 0.27% gain for the All-Share Index (27/4).

Nigerian Breweries Earnings Highlight 1Q23

Source: Company Financials, FSDH