The economic uncertainty in the country has weakened Nigerian Breweries plc’s (NB) growth potentials, according to BusinessDay analysis of the firm’s 2014 audited financial statement.
The 2014 audited financial results released on the floor of the exchange showed NB’s profit after tax (PAT) fell by 1.3 percent to N42.52 billion from N43.08 billion in the same period of the corresponding year (FY) 2013, while sales fell slightly by 0.8 percent to N266.37 billion.
“We believe that the y/y decline on the top-line was driven by a slow-down in beer demand arising from significant macro headwinds,” said Tunde Abidoye, equity analysts at FBN Capital, in an emailed note to Businessday.
“The devaluation of the naira by around 8 percent (officially) also likely weighed on earnings,” said Abidoye.
Analysts are attributing the sluggish performance of brewers in Africa’s largest economy to decline in discretionary spending that dampens consumption, insecurity in the North of the country and the devaluation of the naira.
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The currency volatility, which has made imports more expensive, is driving costs of these firms as barley, the major raw material used in the manufacture of beer, is imported.
The nation’s currency, the naira, fell to a record low of N204.25 to the dollar last week, a decline of 20 percent since the start of December.
“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, in a response to questions.
Analysts also identified poor infrastructure such as bad roads, huge costs of running generators that culminate in spiralling energy costs as impediments to the growth of Nigerian brewers.
These challenges have hindered beer makers from exploiting Nigeria huge population and growing middle-class to boost net income.
NB’s cost-of-sales ratio, which measures the relationship between cost of production and sales, remained flattish at 49 percent which means the company spent N0.49 for every N1 spent generated in sales.
Operating expense ratio, a measure of efficiency, increased to 26.44 percent in FY 2014, against 25.83 percent as of FY 2013, while operating expenses were up by 1.5 percent to N70.44 billion.
Net margin, a measure of profitability and efficiency also remained flattish at 16.03 percent.
Despite the tough and unpredictable macro environment in Africa’s largest economy – Nigeria, the country’s demographic dividend will be a key driver of growth of the breweries market.
The country has a median age of 19 years; and about 55 percent of the population is within the age bracket of 15 to 65 years. Also, as beer volume begins to slow in developed markets, Africa and other emerging markets are the major engines for growth.
NB is poised for this growth as it is aggressively expanding operations with a view to increasing share of the market as it is concluding merger with Consolidated Breweries (CB).
The company’s total assets increased by 38.16 percent to N349.22 billion in FY 2014, compared with N252.75 billion as of FY 2013.
NB’s share price closed at N131 on the floor of the exchange while market capitalisation was N975.66 billion.
“As such, sales growth was most likely constrained by a volume-price mix, with volumes skewed in favour of NB’s value brands on the back of down-trading by consumers,” said Abidoye.
BALA AUGIE
