July 28, 2023/Cordros Report
Nigerian Breweries Plc (NB) published its Q2-23 unaudited financials on 27 July. The results showed a loss per share of NGN4.44 compared to the earnings per share of NGN0.64 in Q2-22. Consequently, the H1-23 loss per share amounted to NGN5.73 (vs EPS of NGN2.32 in H1-22). The slump in earnings was primarily impacted by the significant increase in the net finance cost (+967.3% y/y) recorded in the reporting period.
NB reported a 13.0% y/y revenue growth in Q2-23, supported by (1) higher pricing – 20.1% y/y increase according to our channel checks – and (2) the company’s premiumisation drive, led by Desperados. In the same vein, the brewer’s topline expanded by 24.9% on a quarter-on-quarter basis.
However, in H1-23, revenue only grew by 1.2% y/y (H1-22: +31.0% y/y), influenced by price increases amid the cash crunch, which had a negative impact on revenue growth in Q1-23 (-10.5% y/y).
Despite facing inflationary pressure on input costs, NB managed to improve its gross margin to 44.4% in Q2-23, which was 312bps y/y higher than the 41.3% reported in Q2-22. The expansion in gross margin was driven by stronger revenue growth (+13.0% y/y) relative to the increase in cost of sales (+7.0% y/y).
In Q2-23, operating expenses decreased by 3.1% y/y, attributed to cost management initiatives. As a result, EBIT and EBITDA margins reached 17.3% (Q2-22: 9.0%) and 24.9% (Q2-22: 16.0%), respectively.
Owing to the recent FX policy reforms, the brewer’s net finance cost saw a significant jump of 967.3% y/y to NGN76.90 billion (Q2-22: NGN7.21 billion). This increase was primarily driven by a 12.1x rise in FX losses to NGN70.62 billion (Q2-22: NGN5.40 billion), resulting from exposure to foreign currency-denominated payables, coupled with a higher finance cost (+228.6% y/y).
Overall, NB recorded a loss before tax of NGN50.28 billion in Q2-23 (vs profit before tax of NGN5.13 billion in Q2-22). Following a NGN13.52 billion income tax in the period, the loss after tax settled lower at NGN36.76 billion (vs PAT of NGN5.31 billion in Q2-22).
Comment: NB faced difficulties in the period due to the challenging operating environment, resulting in a loss during this period. Currency devaluation, cash crunch, weak purchasing power, and ongoing FX illiquidity were key factors contributing to these challenges. Nevertheless, we anticipate improved revenue growth in the upcoming quarters as the brewer focuses on strong pricing and continuous enhancement of its premiumization strategy. Despite this positive outlook, the recent naira devaluation is expected to adversely impact the brewer’s earnings in the near term. Our estimates are currently under review.
