December 12, (THEWILL) – Nigerian Breweries Plc posted a huge decline of N852 million in its Group profit after tax (PAT) for the third quarter (Q3) of 2021. This represents a 63 percent drop from N1.35 billion recorded in the corresponding Q3 (Quarter-to-Date) of 2020 to N498 million in the Q3 (Qurter-to-Date) review period – all at Group level. To some extent, the company’s nine-month performance as of September 2021 seems to strike a reversal chord from the sharp fall of 2020 to a quantum leap in the current financial year. But the Q3 PAT plunge has reconfigured the platform for positive prospects.
Notwithstanding the relatively impressive nine-month (cumulative) performance, which offers grounds for a good dividend outlook for the year, the plunge in Q3 profit is set to alter investors’ prospects in this regard. They may therefore have to wait for another full year, at least, before the growth trajectory truncated by the 2020 COVID-19 year, is restored.
A look at the five-year report of the firm shows that 2020 marked three years of sustained drop in profit for the 75-year-old multinational brewing giant. The firm’s PAT dropped from N33 billion in 2017 to N19.4 billion in 2018 representing 41.3 percent; it thereafter tumbled further to N16.1 billion in 2019 before pulverizing to N7.5 billion in 2020.
While the plunge to N7.52 billion in 2020 can be traced to the COVID-19 pandemic, the declining trend before then, after 2017 when PAT rose to N33 billion from N28.39 billion, was a source of worry to investors amid the difficult operating environment.
With post-COVID-19 recovery setting the pace in corporate activities, investors were anxious to see resumption of positive return-on-investment, hence the concern that the disruption in Q3 profit performance created. Moreover, analysts had predicted mixed fortunes based on the firm’s H1 report, indicating that the dividend prospect for the year would be positive amid a return to growth trajectory.
“Although NB’s top-line performance reflects the firm’s recovery to pre-pandemic levels, we are not entirely optimistic about its bottom-line growth given the tepid economic recovery of the operating environment — FX illiquidity, high inflationary pressures, higher inputs costs amid further currency devaluation are likely to persist throughout 2021. Furthermore, consumers’ price sensitivity poses a downside risk to the brewer’s business.
“On the flip side, we are impressed with the growth in earnings delivered by Nigerian Breweries, and we believe the company is best-positioned amongst its peers to brave the current macroeconomic headwinds and deliver improved earnings in Q3-21,” said analysts at InvestData.
As predicted, Nigerian Breweries for the nine-month period of 2021 (at September 30), grew its revenue by 32.1 percent to N309.22 billion from N234.02 billion recorded in the corresponding period in 2020. Further breakdown of the audited result showed that profit for the company during the nine-month period also grew from N7.1 billion to 8.47 billion, representing a 20.1 percent rise.
Cost of Sales rose significantly by 37.9 percent from N144.1 billion in 2020 to N198.74billion in the period under review in 2021, while Marketing, Distribution, and Administration Expenses also grew by 27.2 per cent from N67.86 billion in 2020 to N86.32 billion in 2021.
The board of directors of the company had approved an interim dividend of N3.23 billion payable to shareholders at 40 kobo each per ordinary share of 40k.
A statement signed by the Company Secretary/Legal Director, Nigerian Breweries Plc, Uaboi Agbebaku, revealed that the firm is committed to its strategy to deliver improved growth as it continues to monitor the business environment and remain dynamic in its response to challenges confronting the business as well as that of the economy, particularly in the face of COVID-19 pandemic.
Agbebaku explained that the company would continue to deploy cost-efficient measures to keep the balance sheet strong and healthy while ensuring that the health, safety and welfare of its employees, customers and partners are protected.
“The company did well to have declared an interim dividend; that will rekindle investors’ confidence in the old generation brewing firm. However, the significant decline in profit recorded in the third quarter, which ends the nine-month period, makes it difficult for NB to sustain the dividend trajectory that had been anticipated in the course of the year based on the previous quarters’ reports. Investors should rather recondition their minds that the company is still not yet out of the woods,” said Abiodun Michael, an investment analyst.
Michael told THEWILL that high operating expenses mitigated against Nigerian Breweries in its post-COVID-19 recovery effort, such that an increase in the prices of its products could not halt the advserse effects to make a meaningful impact.
He pointed out that the excitement that greeted the relatively impressive performance of the firm in H1 2021 had been diluted with the huge slump in PAT in Q3 (July-September) 2021.
In the last five years (2016-2020) Nigerian Breweries recorded a mixed performance in key fundamentals, with the last three years (2018-2020) bearing the brunt of the firm’s challenging outlook. Revenue rose from N313.74 billion in 2016 to N337 billion in 2020, which showed the company’s aggressive marketing strategy to survive the challenges of 2020 COVID-19 restrictions and the 15-month land border closure.
PAT tumbled to N7.52 billion in 2020 from the 2016 height of N28.39 billion, while dividend per share thinned to 176 kobo from the peak of 460 kobo as Earning Per Share (EPS), which recorded 385 kobo in 2016, dipped to 92 kobo in 2020. The company’s share price also slumped from N136 in 2016 to N56 in 2020.
What the nine-month 2021 report shows is that the company is likely to continue the growth trajectory to the end of the year but moderately on a ‘scuttled’ trend caused by the huge slump in Q3 PAT.
The festive season is likely to see a spike in the Fast-Moving Consumer Goods (FMCG) sector, especially the brewing sub-sector, as demand for alcoholic and non-alcoholic beverages looms large. Accordingly, the 2022 Q1 result will put Nigerian Breweries on a speed lane to fuller recovery.
The Corporate Communications Department of Nigerian Breweries insists that the firm’s nine-month report showed an impressive performance. From their intereation with this newspaper, they would rather focus on that than bother about a plunge in Q3 PAT.
About the Author
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
