February 19, 2024/Cordros Report
Nigerian Breweries Plc (NB) published its 2023FY audited financials after close of market on Friday, 16 February, reporting a loss per share of NGN12.80, a sharp contrast to the earnings per share of NGN1.58 in 2022FY. The weak performance in the period was driven by the combined impact of (1) weaker gross margin (-329bps y/y), (2) increased FX loss (+482.1% y/y) and (3) higher finance costs (+331.8% y/y).
In 2023FY, revenue increased modestly by 8.9% y/y (2022FY: +25.9% y/y), aligning with our forecast (+9.0% y/y), driven by higher pricing and better product mix. However, volume performance in the period weakened, reflecting the pressure on consumer disposable income due to inflation and the impact of naira devaluation and fuel subsidy removal.
Gross profit margin declined by 329bps to 35.5% in 2023FY (2022FY: 38.7%) due to the faster increase in the cost of sales (+14.7% y/y) relative to revenue growth (+8.9% y/y). The higher cost pressures in the period stemmed from the highly inflationary environment and naira devaluation. Consequently, EBIT (-207bps y/y) and EBITDA (-125bps y/y) margins dipped to 7.3% and 15.3%, respectively, in 2023FY, further dampened by a 4.4% y/y growth in OPEX.
Following a (1) 482.1% y/y increase in FX losses, attributable to naira devaluation, and (2) higher finance cost (+331.8% y/y), net finance charges increased significantly by 449.7% y/y to NGN189.19 billion in 2023FY. On the higher finance costs, we note that the brewer took on additional loan facilities as total borrowings surged by 179.4% y/y to NGN341.60 billion in 2023FY.
Overall, NB recorded a pre-tax loss of NGN145.22 billion in 2023FY (vs PBT of NGN17.34 billion). Following a tax credit of NGN38.92 billion in the period (vs tax expense of NGN4.15 billion in 2022FY), the loss after tax printed NGN106.31 billion (vs PAT of NGN13.19 billion).
Management call today (19 February 2024) at 1:00 pm Nigerian time. Click here to join.
Comment: The brewer was notably affected by the weak purchasing power of consumers due to escalating inflationary pressures and the impact of the naira devaluation. We also cite the continuous pressure on margins, underpinned by increased cost pressures. Looking ahead, we anticipate higher prices to support NB’s revenue, although volume growth may remain subdued due to constrained consumer spending. Additionally, we note that cost pressures, persistent FX illiquidity issues and elevated finance costs remain significant challenges to profitability. Our estimates are under review.
