FSDH Initial Reaction: Nigerian Breweries 2Q23 results 
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July 31, 2023/FSDH

Key Performance Highlights:

• Nigerian Breweries reported a 13.1% YoY increase in revenue to N154.1 billion in 2Q23 against N136.3 billion in 2Q22. During 2Q23, several factors significantly impacted the Company, including the removal of fuel subsidies, which affected consumers, the devaluation of the local currency, leading to higher input costs, and the revaluation of foreign exchange obligations. Despite these difficulties, the Company managed to report strong operating performance, with the Operating profit showing remarkable improvement, increasing by more than 100% compared to the same quarter in 2022. This growth was driven by successful pricing strategies, emphasis on premium products, and effective cost management.
   
• The Company’s other income fell 12.5% YoY from N1.1 billion in 2Q22 to N998 million in 2Q23. The selling and distribution expenses were down 9.2% YoY to N34.8 billion, and the administrative expenses rose 14.5% YoY to N8.0 billion in 2Q23, mainly driven by increased employee benefits and distribution costs. The finance income declined by 6.1% YoY to N146 million in 2Q23 compared to N155 million in 2Q22. In contrast, the finance costs increased significantly by 232.7% YoY to N6.4 billion in 2Q23, from N1.9 billion in 2Q22 due to higher interest expense on leases. Additionally, the Company’s foreign exchange losses ballooned 14x YoY to N70.6 billion in 2Q23. Consequently, the Company incurred net finance costs of N36.9 billion in 2Q23.
   
• In 1Q23, the Company reported a loss before income tax of N50.4 billion versus a profit before income tax of N4.9 billion in 2Q22. Although the Company benefited from an income tax credit of N13.5 billion, it still reported a net loss of N36.8 billion in 2Q23, compared to a net profit of N5.1 billion in 2Q22. Nigerian Breweries reported a loss per share of N4.44 in 2Q23 versus earnings per share of N0.64 in 2Q22.
   
• Sequentially, Nigerian Breweries’ revenue declined by 25% QoQ to N154.1 billion in 2Q23. However, this decline was partially offset by a 7.8% increase in the cost of sales QoQ. Although there was a slight 3.2% QoQ increase in selling and distribution expenses to N34.7 billion, the rise in other income and fall in administrative expenses led to the Company’s operating profit increase multifold QoQ to N26.5 billion in 2Q23 versus N1.9 billion in 1Q23. The Company’s net loss on financial assets was down 69.9% to N133 million, and finance income increased 265.4% QoQ to N146 million in 2Q23, while the finance cost jumped 36.2% QoQ. Consequently, Nigerian Breweries reported a loss before tax of N50.4 billion in 2Q23, compared to a loss before tax of N1.7 billion in 1Q23. Helped to some extent by tax credit, the Company reported a net loss of N36.9 billion in 2Q23 compared to a net loss of N10.7 billion in 1Q23.
   
• The Company’s margins, except net margin, expanded significantly in 2Q23, with the EBITDA margin increasing by 850 bps YoY, and the Operating margin and Gross margin increased YoY by 830 bps and 312 bps, respectively.

Market Reaction: Investor’s reaction to 2Q23 results was subdued as the Nigerian Breweries stock closed 8.75% lower at N36.50 versus a 0.65% loss for the All-Share Index (28/7).

Nigerian Breweries Earnings Highlight 2Q23

Source: Company Financials, FSDH