Tough economic times in the country is slowing growth potential for Nigerian Breweries (NB)

The 2014 Financial Statements for the company showed a profit after tax (PAT) declined by 1.3 percent to N42.52bn, when compared to N43.08bn from the previous year (FY 2013). Sales also fell slightly by 0.8 percent to N266.37bn.

“We believe that the year-to-year decline on top-line was driven by a slow-down in beer demand arising from significant macro headwinds,” said Tunde Abidoye, Equity Analyst at FBN Capital.

The devaluation of the Naira by around 8 percent (officially) also likely weighed on earnings, he added.

Analysts are faulting the decline in fortunes of the brewery sector to a fall in disposable income occasioned by insecurity in the North and the devaluation of the naira.

The exchange rate volatility has made imports more expensive as some raw materials such as barley has to be imported.

“We imagine that most of these firms will struggle to survive daunting pressure on costs occasioned by the naira volatility and the pass-through impact of naira devaluation / depreciation,” said Saheed Bashir, an Analyst at Meristem Securities Limited.

Other analysts assign part of the problem to poor infrastructure like bad roads, high cost of running generators that add to spiraling energy costs as stumbling blocks to the growth of the beer sector.

NB’s Cost of sales ratio which shows the relationship between cost of production and sales remain the same at 49 percent. What it says is that the company spent N0.49 for every N1 spent generating sales.

Operating expense ratio, which measures efficiency, rose to 26.44 percent in FY 2014 against 25.83 percent as of FYY 2013. The company also saw operating expenses rise by 1.5 percent to N70.44bn.

Net margins, which measures profitability and efficiency remained the same at 16.03 percent.

Despite the current difficulties, Nigeria’s huge population remains a key economic driver of growth for the beer market.

About 55 percent of Nigeria’s population falls between the median age of 19 years, and 65.

NB is continuing to expand its operations aggressively with the intent to increase its market share with the merger of Consolidated Breweries (CB).

The company’s assets increased by 38.16 percent to N349.22bn in FY 2014, compared with N252.75 billion from the preceding year.

Analyst Abidoye said that “Sales growth was most likely constrained by a volume-price mix, with volumes skewed in favour of NB’s value brand on the back of down-trading by consumers.