October 29, 2024/InvestmentOne Report
Revenue Growth Continues Despite Operational Challenges: In its 9M:2024 results, Nigerian
Breweries Plc demonstrated strong revenue growth, with net revenue increasing by 76.92% year-over-year to NGN 710.87 billion. This significant growth, however, was matched by escalating costs, as cost of sales doubled, rising by 100.99% to NGN 500.96 billion, reflecting the intense inflationary pressures and challenging operating environment. Despite these cost pressures, gross profit showed robust growth of 86.88% to NGN 209.91 billion. Other income also saw a healthy increase of 73.92% to NGN 3.40 billion.
Operational Costs Impact Profitability: The company experienced significant pressure on its
operational expenses, with marketing and distribution expenses rising by 40.91% to NGN 143.10
billion, while administrative expenses increased by 50.71% to NGN 37.76 billion. Notable was the substantial increase in expected credit loss on financial assets, which surged by 426.91% to NGN 3.40 billion. Despite these cost pressures, the company managed to achieve a modest 6.55% growth in operating results, reaching NGN 29.05 billion.
Foreign Exchange Challenges Severely Impact Bottom Line: Net loss on foreign exchange
transactions increased by 84.83% to NGN 160.48 billion, while finance costs surged by 281.42% to NGN 72.04 billion. Although finance income grew by 65.26% to NGN 483.50 million, it was insufficient to offset the substantial forex-related losses. The net finance costs more than doubled, increasing by 120.11% to NGN 232.04 billion. These challenging conditions resulted in a loss before tax of NGN 203 billion, representing a 159.71% increase in loss compared to the previous year. Despite a tax credit of NGN 53.50 billion (up 155.14%), the company recorded a loss after tax of NGN 149.50 billion, marking a 161.39% increase in net loss compared to 9M 2023.
Balance Sheet Position: The company’s balance sheet showed significant changes, with total assets growing by 39.75% to NGN 991.97 billion. Notable changes include: Property, plant and equipment increased by 23.33% to NGN 478.33 billion due to investment in a new plant. Consequently, Current assets increased by 51.52% to NGN 317.57 billion, In the Liabilities and Equity Position, total liabilities increased by 80.33% to NGN 1.08 trillion, with significant changes in line items like Non-current loans and borrowings which went up 347.38% to NGN 269.25 billion, current loans and borrowings increased by 54.49% to NGN 382.85 billion and trade and other payables rose by 55.08% to NGN 387.09 billion. The company’s equity position deteriorated significantly, with total equity turning negative at NGN -85.30 billion, a 175.85% decline from the previous year. This was primarily due to retained earnings moving to a negative NGN 175.80 billion, representing an 864.53% decrease from the previous year.
Outlook: Nigerian Breweries has demonstrated strategic resilience through multiple initiatives, notably backed by parent company Heineken’s decision to suspend interest payments on intercompany loans, providing crucial financial relief amid challenging macroeconomic conditions. The company’s transformative NGN599.1 billion rights issue represents a significant step toward reducing FX exposure and strengthening its balance sheet, while also providing essential working capital for operations in a high-interest rate environment.
Operational efficiency has improved through strategic plant consolidation, with the temporary suspension of operations at two facilities helping to optimize costs, as evidenced by controlled growth in operating expenses despite intense inflationary pressures. The combination of recent product price adjustments, stabilizing inflation trends in Nigeria, and the anticipated completion of the rights issue positions the company for improved performance, particularly in addressing the significant foreign exchange losses that have impacted profitability. We hence place a BUY rating on NB.
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