Fresh N33 billion loss by Nigerian Breweries in its second quarter operations has topped up the previous quarter’s loss of N78.4 billion, pushing its retained deficit to N111.4 billion by the end of June 2024.
The second-quarter loss by the brewery giant showing a continuing harvest of losses for eight quarters running since the third quarter of 2022, has wiped off the equity capital entirely and left the company with a negative equity base.
The current situation is driven by the mounting foreign exchange losses, the rise in the cost of funds and the input expenses that have continued to drive the company’s bottom line deeper into the red.
The loss in the second quarter jerked up the group loss to N85 billion at half-year, and has, in turn, erected accumulated losses of over N111 billion that have erased what remained of the equity base at the end of the first quarter and sunk shareholders’ funds more than N21 billion below zero.
These numbers are contained in the company’s half-year interim financial report up to June 2024. The report shows that though the company’s management gained momentum in building sales and reducing costs, it has no control over the two main loss drivers: foreign exchange losses and rising finance expenses.
Group quarterly sales revenue went up from N227 billion in the first quarter to roughly N252 billion in the second quarter – increasing by 63.4 per centt over the sales figure in the same quarter last year, but slowing down from 84 per cent growth in the first quarter.
Nigerian Breweries was lucky in the first quarter when input cost grew slightly below sales revenue. It however lost this critical advantage in the second quarter during which it paid a lot more in cost of input to obtain the naira of sales.
At N174 billion for the second quarter, the cost of sales grew well ahead of sales revenue at 103 per cent, meaning a unit production cost of over 69 kobo against less than 56 kobo in the same quarter last year.
The gross profit for the quarter therefore grew by 13.7 per cent to N77.8 billion, down from a jump of 86.6 per cent in the first quarter.
The increase in gross profit was insufficient to meet rapid increases in operating costs as selling and distribution expenses rose by one-half to over N51 billion for the quarter and administrative costs grew by 60.4 per cent to almost N13 billion.
In addition to the cost increases is a net loss on financial assets that multiplied nearly 15 times in the quarter to slightly below N2 billion according to the half-year interim financial report which showed that the cost increases slashed operating profit for the second quarter by 51.4 per cent year-on-year to N12.9 billion compared to over 13 times the jump recorded in the first quarter.
The foreign exchange loss for the quarter is a drop of 44 per cent from N70.6 billion incurred in the same quarter last year but the cost saving was largely claimed by a nearly four times leap in finance cost to N24.4 billion.
Net finance cost of N63.6 billion for the second quarter is almost five times the operating profit for the quarter, resulting in a pre-tax loss of N50.7 billion for the three months of the second quarter.
An income tax credit of N17.7 billion reduced the after-tax loss figure to N33 billion for the second quarter, topping up the first quarter loss of N52 billion to over N85 billion at half year.
The half-year position of the brewing company is an addition to the strength of bigger sales revenue in the second quarter and the weakness of increased costs though with a lower loss figure for the period.
The company closed half-year trading with a turnover of about N480 billion, representing year-on-year growth of 73 percent. With the increase in the cost of sales in the second quarter, production cost overturned from cost savings achieved in the first quarter, to revenue consuming at half year.
Cost of sales rose by 94 per cent year-on-year to N320 billion against the 73 per cent increase in turnover. With loss of margin, gross profit grew by 42 per cent to N159.7 billion over the period.
The increases in operating expenses, including a major increase of 481 per cent in net loss on financial assets to N3.3 billion, lowered margins further and operating profit improved by over 34 per cent to N38 billion at half year.
Net foreign exchange loss of over N112 billion together with finance expenses of N42.5 billion at the end of June 2024 consumed the operating profit but a tax credit of N31 billion cut a pre-tax loss of over N116 billion to a net loss of N85 billion for the half year.
To move the company forward, Nigerian Breweries has articulated a business recovery plan, anchored on fresh capital injection through a rights issue, according to the management’s release at the end of the half-year operations.
The plan is to rebuild the company’s lost equity capital, pay off the exchange loss-generating foreign debts and cut down the high interest-bearing local borrowings. The company’s balance sheet debts stood at over N588 billion at the end of June 2024.
How soon the company could accomplish its plan and to what extent, are the key points to watch on the prospects for a turnaround for Nigerian Breweries in the short- to medium-term.
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