Nigerian Breweries profit slumps 23% in 9-months amid challenging macroeconomic conditions

Nigerian Breweries Plc on Wednesday reported a 23% drop in profit to N20bn in the 9-months to September 30 2016, from N26bn it made in the previous year. It blamed the decline on skyrocketing net finance cost of 95% which shaved N10bn off the company’s operating profit compared to the N5.2bn it spent on finance cost in 2015.

Despite posting a 3.7% revenue increase to N223bn in the 9-months to September, from N215bn in 2015, cost of sales in Q3 (July – Sept) accelerated, rising 17% to N42bn, from N36bn in 2015, further lowering the company’s gross profit margin by 15% to N23bn, from N27bn in the preceding year.

The company also witnessed a 24% surge in Marketing & Distribution Expenses in Q3, further depressing the brewer’s operating profit by 55% to N4bn, from N8.9bn in the same period in 2015.

The brewer’s net income in the third quarter accelerated downwards, dropping 78% to N1bn, from N4.6bn it made in 2015.

Nigerian Breweries parent company, Heineken N.V. said in opening remarks in its released financial results earlier on Wednesday that the underlying trading conditions in Nigeria remained difficult as weak macroeconomic environment and low consumer sentiment continue to impact negatively on brand mix. Although the Naira devaluation on 20th June 2016 initially helped in terms of liquidity, the Naira has continued to weaken, which will have further impact on margins.

A released statement by Nigerian Breweries accompanying its financial results read, “The macroeconomic environment deteriorated further in the third quarter of the year compared to the first half; consumers continued to down-trade to lower priced brands. However, the Company delivered top line growth with Revenue increasing by 4% over the same period of 2015. Rising inflation combined with the devaluation of the Naira led to higher input costs, resulting in an 11% decline in Operating Profit.

“The negative impact of scarcity of foreign exchange combined with the Naira devaluation more than offset the lower interest costs resulting in a 94% increase in Net Finance Costs. Profit After Tax declined by 23% mainly due to foreign exchange losses as a result of the devaluation.

“The operating environment is expected to remain challenging for the rest of the year. The Company will continue to focus on its twin agenda of Cost and Market Leadership supported by innovation. The Board is confident that the Company is well positioned to take advantage of any upswing in the market.”

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