Nigerian Breweries Plc closed the second quarter operations with profit crashing a clear 98 percent quarter-on-quarter to N84 million at the end of June 2020. That pushed the half-year position to greater speed on a downward slide from the first quarter position.
It was virtually a lost second quarter for the brewing company with operating pressure intensified all the way from top to the bottom lines. Gross profit dropped by close to 34 percent quarter-on-quarter to N24 billion while operating profit crashed by 60 percent to N4 billion over the same period.
Operating profit was insufficient to meet finance expenses of about N4.2 billion incurred in the quarter. Only a finance income of N115 million saved the company from an outright loss position for the quarter. An after-tax of less than N84 million for the quarter compares to a corresponding profit of over N13 billion for the second quarter of last year.
Nigerian Breweries is again losing sales revenue with profit and this is happening for the third year running. The half-year position shows an accelerated drop in earnings figures so far in the year. This largely reflects the impact of economic lockdown that has further weakened an already unwilling consumer market for brewed products.
The company ended last year with a drop of 17 percent in profit, which accelerated to 31 percent in the first quarter and further to 58 percent at half-year ended June 2020. The first quarter closing profit of N5.5 billion only inched up to N5.59 billion at half-year.
Costs are generally sticky, as sales revenue is dropping. Leading the defiant cost behavior is finance expenses, which vied off track to a 58 percent advance quarter-on-quarter at the end of half-year operations.
At the centre of the company’s challenges is declining sales revenue, which has been on since 2018. Costs keep moving up generally or at best sticky while the company keeps losing sales revenue. The development has squeezed margins across the board, which has continued to jerk down profit numbers at various points on the income-expenditure flow.
Two major developments from the cost angle explain the company’s poor performance for the second quarter. The first is input cost, which shifted from flat together with sales revenue in the first quarter to declining well below sales in the second quarter.
The second is finance expenses, which also shifted from flat to a 58 percent growth across the quarters. Added to the trouble is that the company’s balance sheet debts have grown two and half times from N56 billion at the end of 2019 to over N139 billion at the end of half year in June 2020.
The hopes for regaining operating momentum seen in the first quarter were dashed in the second quarter that was ruled by the coronavirus-induced economic lockdown. Some recovery may be expected in the third quarter, as economic activity begins to gain momentum though not likely to be strong enough to make up for the company’s disappointing second quarter.
The second half of the year is laced with a great deal of uncertainty for the company in the reflection of both the general economic constraints and lingering industry issues. Profit performance is uneven across quarters for Nigerian Breweries and even without the economic lockdown effect last year, the second half contributed only a net of N2.8 billion to the full-year profit figure of N16 billion.
Brewing companies continue to be at the receiving end of Nigeria’s weak consumer spending capacity and they have been there for some years now. The performance of companies from this sector can be expected to be among the worst this year in reflection of the effects of the coronavirus pandemic.
Sales revenue extended from flat in the first quarter to an 11 percent drop at half-year. Profit dropped by 31 percent on flat revenue in the first quarter and dropped more than five times ahead of revenue year-on-year at the end of June 2020. All the cost lines of the company claimed increased proportions of turnover during the period, as they either increased or declined less rapidly than sales year-on-year.
Nigerian Breweries closed half year operations with net sales revenue down by roughly 11 percent year-on-year to N151.8 billion. The company had lost sales revenue for the second year in 2019 and the half-year position this year points to the highest revenue drop in many years.
With a much-depreciated profit record in the second quarter, the company ended half year operations with an after-tax profit of N5.59 billion. This is virtually unchanged from the first quarter profit figure and represents a drop of 58 percent year-on-year. For the third straight year, the company’s profit is downward headed and gaining speed on the run.
Last year, Nigerian Breweries suffered a drop of 17 percent from the preceding year’s profit and closed the year at N16 billion. An accelerating drop at the end of half-year points to a worse year in the making for the brewing company in 2020.
The outlook for the second half of the year continues to point to revenue constraints ahead while costs may be difficult to contain. With finance expenses joining the other rising costs, the company’s dropping profit may continue to gain speed on the downward slope.
Nigerian Breweries earned 71 kobo per share at the end of the half-year operations, down from N1.66 per share in the same period last year.
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