Nigerian Breweries posts lower half-year (H1) profits on higher operating costs, competitive pressure

Nigerian Breweries (NB Plc) reported a 10 percent decline in its half-year (H1) profits after tax to N21.477 bn, when compared to half-year (H1) 2014 profits after tax of N23.871 bn.

The profit and loss statement shows higher costs of sales, higher operating expenses and higher interest expense among others as contributing factors. The one bright spot was gross earnings, which grew by 7.19 percent to N151.673 bn, when compared to 2014 half-year results of N141.45 bn.

The beer industry, which has seen unprecedented growth in the last decade and, thereby, attracting huge investments from foreign majors such as Diageo, the world’s largest drinks company and owner of Guinness Nigeria Plc and Heineken, which owns majority shares in Nigerian Breweries Plc, and South Africa Breweries Miller (SABM), a new entrant to the market, that has been expanding in the eastern part of the country.

Nigerian Breweries Plc and Guinness Nigeria Plc have dominated the Nigerian beer market, and to a large extent still do. However, the entry of SABM and the shifting consumer taste in favour of alcoholic drinks that contain herbs or bitters with spirits seem to be altering the market dynamics.

It all started with the entry of Alomo bitters, a product of the Kasapreko Company of Ghana into the Nigerian market. It took the beer majors by surprise and they have been responding to the market developments with the introduction of new products – ‘Origin’ from Guinness Nigeria Plc and ‘Ace Passion Spark’, ‘Ace Roots’, and more recently ‘Star Triple X’ from the stable of Nigerian Breweries Plc.

Market watchers attribute the drop in profits at Nigerian Breweries to strong competition in the market, a fall in the price of oil, which is the primary revenue earner for the country, and a subsequent devaluation and drop in the value of the naira.

Market analysts at Renaissance Capital (RenCap) think the half-year results are poor as they had expected. “Unfortunately, we do not believe the pain is over yet. We have lowered our industry and company growth forecast for FY15 and FY16, as the consumer remains severely constrained. We expect further downside to margins given pressure on the naira.” They are forecasting industry growth of zero percent from four percent for FY15 and two percent from six percent for FY16.

Company outlook – The view from within

The Managing Director / Chief Executive Officer, NB Plc, Mr. Nicholas Vervelde said that the merger with Consolidated Breweries, will enable the combined business to fully capitalize on the future growth potential of the Nigerian beer and Malt drinks market.

He added that the transaction is expected to create synergy and value for all key stakeholders, particularly shareholders, drive benefits from increased economics of scale, enhance operating and administrative efficiencies and increase the new company’s speed and agility in response to market developments.

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