Nigerian Breweries suffered a sharp drop in quarterly profits from N13.6 billion in the first quarter to N5.1 billion in the second. Yet, its N18.7 billion closing profit at half year is already well above the full year after tax profit of N12.7 billion in 2021.
That keeps the company on recovery track after a three-year drop in group profit bottomed at N7.4 billion in 2020. The brewing company is set on a long journey to build back profit to the previous peak of over N43 billion or higher.
The setback in the second quarter came from two major rising costs that claimed much of the N33 billion increase in net revenue in the quarter. These include marketing/distribution expenses, which claimed 68 percent of gross profit in the quarter. On quarter-on-quarter reading, marketing and distribution expenses grew ahead of sales revenue at 52 percent compared to 31.6 percent.
The second major rising cost in the second quarter that led to profit drop is cost of finance, which was led by a net foreign exchange loss of N5.4 billion. Exchange loss more than doubled in the quarter and accounted for 74 percent of the half year figure. The foreign exchange losses were driven by a higher cost of meeting foreign obligations to overseas partners, according to the company’s report.
While the slowdown in the second quarter has tempered the strong turnaround force the company registered in the first quarter, it still holds high hopes to cover a great millage at the end of this year, standing already at 147 percent of last year’s closing profit at half year.
The brewing company’s interim financial report for the half year ended June 2022 shows a profit growth of 143 percent year-on-year, which is a major acceleration from a 72 percent profit improvement at the end of 2021.
In his comment on the half year earnings report, Mr. Uaboi Agbebaku, the company secretary, stated that the marked profit improvement is driven mainly by top line growth resulting from pricing strategy and better mix.
The company closed the half year trading with net sales revenue of N274 billion, which an increase of 31 percent year-on-year, representing an even performance across the two quarters. Improving sales has been the strength for the company’s turnaround since last year when revenue picked up from 4 percent increase in 2020 to 30 percent.
The increase in sales at the end of half year in June 2022 represents additional revenue of N65 billion raked in over the period.
Growing revenue is reinforced by moderated cost of sales, which the company is maintaining for the second year as well. Cost of sales grew by 18 percent to N155 billion compared to the 31 percent growth in sales. This improved gross profit margin on the naira of sales from 37 kobo to 43 kobo over the period.
The moderation of input cost spurred gross profit well ahead of sales to an increase of over 52 percent year-on-year to N118.7 billion at half year. Further strength came from a strong growth of more than three times in other income to N2 billion over the review period with much of the growth coming in the second quarter.
A challenge on the side of cost continues to come from marketing/distribution expenses, which could not be contained. At N70.4 billion, marketing and distribution cost grew well ahead of sales revenue at 52.4 percent year-on-year. The company attributed the rising cost of marketing and distribution to increase in commercial activities and rising price of diesel.
Administrative cost however moderated at an increase of 16.5 percent to N14.5 billion at half year, changing pattern from growing ahead of turnover in 2021.
The strong gains on the side of income and big cost savings from input cost and administrative expenses powered an exceptional growth of 80 percent in operating profit to N35.8 billion at the end of June 2022.
A major event on finance expenses is a net foreign exchange loss of N5.4 billion in the second quarter, which pushed the half year figure to N7.3 billion. The figure is an increase of 125 percent year-on-year, which countered an increase of 155 percent in finance income to N229 million and a drop of 36 percent in finance expenses to N3 billion.
Net finance expenses therefore grew by 27 percent year-on-year to over N10 billion at the end of half year operations. Nigerian Breweries has raised balance sheet borrowings from N31.4 billion at the end of 2021 to N88 billion at the end of June 2022.
The company’s ability to convert revenue into profit improved with the revenue growth and major cost savings. Net profit margin continues to improve from 2.2 percent in 2020 to 2.9 percent in 2021, jumping to 6.8 percent at the end of June 2022.
The company closed the half year with earnings per share of N2.32, improving from 96 kobo per share in the same period last year.
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