International Breweries Plc, a company acquired by SAB Miller, beat expectations of poor sales amid dollar restrictions, rising inflation, and huge infrastructure deficit which crimped beverage top lines in 2016.
For the year ended March 2016, International Breweries’ net income increased by 36.60 percent to N2.65 billion from N1.94 billion. Sales rose 12.64 percent to N23.26 billion as the introduction of new flagship products moved the market, contributing to top line growth.
Despite unstable power supply which left most firms with no option than to rely on an alternative and more expensive source of power such as diesel to run plant at factories, the Nigerian beer maker recorded improved margins.
Gross margins gained 46 percent in 2016 from 44 percent in 2015. Gross profit increased 15 percent to N10.70 billion in the period under review from N9.06 billion the previous year. Net margins, a measure of profitability and efficiency moved to 11.39 percent in 2016 from 9.39 percent in 2015.
International Breweries was able to record strong growth amid economic lethargy, beating the expectations of analysts who predicted the beer maker may be unable to replicate the success story in the previous year, given recent figures from the National Bureau of Statistics (NBS).
Nigeria, Africa’s biggest economy, is facing a squeeze in consumption as the nation of more than 170 million people suffers from a slump in crude oil prices that has reduced the country’s main source of revenue.
Inflation rate increased to 13.70 percent April, from 12.80 percent in March, the highest since 2010 on the back of increased gasoline price and rising transportation costs, according to NBS.
Consumers have less money in their pockets to buy beer and bars will see less patronage from drinkers.
GDP growth contracted by 0.36 percent in 1Q16, compared to a growth of 2.11 percent recorded in the previous three months. Another negative growth, which is inevitable, means the country is in a recession.
The capital control imposed by the Central Bank of Nigeria (CBN) in order to stabilize the economy is causing currency shortage and serious adverse impact on costs and consumer prices.
Consumer goods firms are forced to source dollar for the importation of raw materials at the black market rate of N340, a huge variation from the inaccessible interbank market rate of N197-N199.
Guinness, the second largest brewer in Nigeria says sourcing materials locally sources more expensive and that passing on the cost to the final consumer with less and less disposable income very difficult.
As a result of the aforementioned challenges, Moody’s investor’s service, a credit rating agency a May 4 report on Sector Index Analysis of Emerging Market Beverage Industry said it expects Nigeria beverage sales to slow.
“In Nigeria (B1 stable) we expect alcoholic beverage volumes, and to lesser extent soft drink volumes, to remain under pressure and for consumers to trade down to cheaper brands,” said analysts at Moody Investor’s service.
Analysts at Moody added in a recent report that Russia, China, Nigeria and Turkey are to remain a drag on profit growth of parent company and that the faltering performance will be compensated by growth in other emerging markets.
Further analysis of International Breweries’ financial statement showed return on equity (ROE) increased to 19 percent in 2016 compared with 16 percent in 2015. This means the company has utilized the resources of shareholders in generating higher profit.
The Nigerian Brewer was able to reduce the amount of debt in its balance sheet as gearing ratio to otherwise known as debt to equity ratio reduced to 61 percent in 2016 from 80 percent in 2015. This means the company is less susceptible to financial risk.
International Breweries’ current ratio, which measures the ability of firm to meeting its short term obligation as at when due fell to 50.48 times, from 73.4 times, lower than the 2.1 times industry average.
The passage of the 2016 budget is expected to boost consumer spend hence bolstering the top lines of brewers as many people will have money in their pockets to hit the bar.
The central bank has allowed a flexible exchange rate regime in order to allow the market determine the equilibrium rate and allow liquidity flow. The impact of such decision by the apex will take some time to impact on the operations of consumer goods firms.
BALA AUGIE
