From a three-year profit drop at the end of 2020, Nigerian Breweries Plc flashed a strong signal for a turnaround in the first quarter. The company closed the first quarter operations at the end of March 2021 with an after-tax profit of N7.6 billion – which has already beaten the closing profit figure of N7.4 billion in 2020.
The first quarter performance raises optimism that outstanding profit growth may take the place of a deep plunge last year. Based on the strength of earnings seen in the first quarter, the brewing company could jerk up profit to the region of N30 billion at full year.
A renewed strength in product sales was observed in the first quarter after three years of inability to grow sales revenue. Against an increase of 4 percent in turnover in 2020, the company pushed up sales revenue a clear 27 percent year-on-year in the first quarter. That meant a gain of N22.5 billion in revenue over the period.
The imbalance in the growth in sales revenue and the cost of producing the naira of sales has however remained albeit some moderation. This is the main factor undermining the company’s profit performance in recent year – the inability to contain the cost of sales as revenue stagnated.
Cost of input rose ahead of revenue in the first quarter at 36.6 percent to N66 billion and therefore claimed an increased share of the earnings. That still represents some moderation, as the input cost of the naira of sales revenue has declined moderately from 65 percent at the end of 2020 to 62 per cent in the first quarter.
The positive effect is the ability to pass part of the increase in sales down to gross profit. The N22.5 billion gain in revenue exceeded an increase of N17.7 billion in cost of sales to N66 billion. This is a major change of position from last year when the cost of sales grew by close to twice the increase in the company’s sales figure.
The result is a change of direction from a drop in gross profit last year to an increase, reflecting the slowdown in the cost of sales. The company reported a gross profit of N39.7 billion at the end of the first quarter, which is an increase of 13.7 percent year-on-year.
The exceptional growth of 103 percent in other income to N368 million over the period reinforced the improvement in gross profit. A further boost still came from management’s firm hold on marketing/distribution and administrative expenses – which helped to moderate the impact of the cost of sales on revenue.
Marketing and distribution expenses grew moderately at 5 percent to N19.8 billion in the first quarter and the administrative cost was flat at N5.7 billion over the period. The moderation of the two cost elements of the company strengthened the operating results for the period.
Nigerian Breweries improved operating profit by 32.6 percent to N14.5 billion in the first quarter. This is an upturn from a drop of 16 percent in operating profit at the end of last year.
Finance expenses maintained the increasing trend recorded last year, growing by 13 per cent to N3 billion at the end of the first quarter. The proportion of operating profit claimed by net finance expenses went down considerably from as high as 61 per cent last year to less than 21 per cent in the first quarter.
Finance cost was the biggest undermining factor to the company’s profit performance in 2020. The expectation is that finance expenses would race upward in the year. Last year, a net finance cost of N2.6 billion in the first quarter ended at over N18 billion at the end of the year.
There is however some reduction in balance sheet borrowings from over N91 billion last year to N73 billion at the end of the first quarter. There is a major improvement in the company’s cash flow position that could lead to further deleveraging of the balance sheet in the financial year.
The positive signals for the company in the first quarter have come from accelerated growth in sales, moderating input cost and a slowdown in finance expenses. These are the signals to watch on the company’s performance in the subsequent interims – whether they succumb or sustain.
The closing profit of N7.6 billion for the first quarter represents a year-on-year leap of 38.6 per cent. This was achieved from the 27 percent increase in turnover, reflecting a gain in net profit margin from 6.6 percent in the same period last year to 7.2 percent at the end of the first quarter.
Nigerian Breweries earned 96 kobos per share at the end of the first quarter operations, up from 69 kobo per share in 2020.
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