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Nigerian breweries Plc, a leading player in the Nigerian brewing industry, is seeing low purchasing power causing a shift in consumers taste for its brand, thereby shrinking earnings for the beer giant.
Its first quarter 2018 scorecard shows that despite an 11.2 percent fall in the firms operational cost, its Profit after Tax (PAT) and Profit before Tax (PBT) were down by 11 percent and 13 percent respectively on a year on year comparison.
The firm Profit after tax declined to N10.2 billion in the first quarter of 2018, from the N11.4 billion that it recorded in the same quarter of 2017.
Gross earnings of N83.0 billion was also down by 9 percent from the N91.3 billion that it recorded in the same period of the preceding year signalling competitive pressure from other industry giants (International breweries and Guinness).
“The company is facing a difficult situation because of competitions from rivals which have affected its volume,” Dolapo Ashiru Managing Director/CEO at Lagos-Based Mega Capital Financial services said.
“International breweries is becoming a significant threat to NBs volume particularly the mainstream and the premium market segment. And we expect international breweries to repack this launch with a major marketing campaign against the 2018 FIFA world cup,” he added.
“For the past 5 quarters, Nigerian breweries volume have been going down also, their foreign exchange loss has risen in Q1 which means that the company may not have fully marked to market the foreign exchange liabilities for last year,” Ashiru said on phone.
Nigerian Breweries Plc. is the largest brewer in Nigeria and the fourth largest listed company on the Nigerian Stock Exchange (NSE).
The firm dominates Nigeria’s beer market with approximately 60 percent market share and a brand portfolio that includes lager beer, stout beer, non-alcoholic malt drinks, carbonated soft drinks, and read-to-drink brands.
NB with a market cap of N999.6 billion has its share price decline -7.49 percent year to date, under-performing the all share index of 6.57 percent.
In 2016 and 2017, the firm took in price increases to counter the effects of rising inflation on its gross margins.
This supported top-line growth in 2017. Meanwhile, FY’17 volumes declined mid-single digits, notably for stout and malt brands, while lager remained largely stable.
From the retail perspective, BusinessDay checks shows that the amount paid by retailers for one create of trophy, a brand of International breweries another major player in the beer market is N2000, while star which is a major brand of NB is N2500.
However, that of Goldberg and 33 exports which are also other brands of NB are sold to retailers for N2000.
Analyst say the increase in the prices of the firm’s major brands ignited a drift of taste by consumers given the fact that the economic downturn has eaten greatly into consumer’s purchasing power, thereby affecting their spending.
“We attribute the continued pressure on volumes to a persistent down trading especially on the firm’s mainstream products- albeit at a much slower pace compared to the previous year; lingering weakness in consumer purchasing power despite gradual decline in inflation; and increasing competition in the brewery landscape,” analysts at Cardinal stone said in a note.
However, “For FY’18, we expect modest improvement in volumes especially as consumer purchasing power gradually recovers. We also think that the brewer will intensify efforts to cement its market leadership across key brands such as Heineken and Star while ensuring competitiveness of its mainstream products.”
Several calls made by BusinessDay to the management of the Brewery giant to get their view regarding the issue, went unanswered.
However, in a filing statement to NSE by the Board of Directors, the brewing giant stated that “while there are some signs of improvement in the macroeconomic conditions, these are yet to be reflected in consumer spending.”
MICHEAL ANI
