Nigerian Breweries grows sales, despite N37bn loss in Q2

Nigerian Breweries Plc has recovered from a 10.5 percent drop in sales revenue in the first quarter to register a 13 percent growth in net sales to over N154 billion in the second quarter. It however closed the quarter with a bigger loss of N36.9 billion than the N10.7 billion figure reported in the first quarter.

The unaudited financial report of the brewing company for the half year ended June 2023 shows the bottom line deep in the red at N47.6 billion for the six months of trading.

This marks the fourth straight quarter of lingering losses for Nigerian Breweries, having sustained losses from the third quarter of last year.

Rising losses against improving sales revenue point to a major problem on the side of costs and the main culprit is a net foreign exchange loss of N70.6 billion that occurred in the second quarter.

That has added to a net foreign exchange loss of N14.5 billion in the first quarter to push the half-year position to a record of over N85 billion net foreign exchange loss. The figure is already more than three times higher than the net foreign exchange loss of N26 billion the company incurred in the 2022 financial year.

Further pressure from costs in the second quarter came from an upshot in finance expenses – which multiplied three and a third times to N6.4 billion for the quarter.

The developments created a net finance cost of nearly N77 billion in the second quarter, close to 11 times the net finance cost of a little over N7 billion the company recorded in the same quarter last year.

The rising costs far outweighed some improvements the company made in its core operations in the second quarter. The upturn in sales revenue was followed by a marked cost saving in production costs.

Unlike in the first quarter when production costs grew while sales dropped, input costs slowed down relative to sales in the second quarter at a 7 percent increase compared to the 13 percent rise in turnover for the quarter.

That saw the company through to a 21.6 percent increase in gross profit to over N68 billion in the second quarter. This was extended by a drop in selling and distribution expenses in the quarter and a big drop in net charge on financial asset losses from over N1 billion in the second quarter of last year to N133 million this year.

The resulting cost savings from operating costs powered operating profit, which more than doubled at 118.7 percent over the period to N26.5 billion. The much improved operating profit for the quarter was however swallowed up by a huge foreign exchange loss.

The company’s half-year numbers show a dilution of the improved sales in the second quarter with the drop in the first quarter, leaving net sales revenue only slightly improved at N277.4 billion.

Production costs grew well ahead of the marginal gain in sales at over 6 percent year-on-year to close at N165 billion. The imbalance in the growth of sales and the cost of the same caused a drop of N6.4 billion in gross profit to N112 billion at the end of June 2023.

A drop in other income and an increase in administrative expenses extended the drop in operating profit to N7.5 billion to close at N28.4 billion in the half year.

The operating profit was consumed by a net foreign exchange loss of over N85 billion at half year – which is a high jump of close to 12 times the foreign exchange loss of a little over N7 billion the company incurred in the same period last year.

Finance costs also jumped more than three and half times to N11 billion over the review period adding to the pressure from foreign exchange losses. Net finance costs mounted at more than N96 billion – nine and half times the net finance cost of over N10 billion in the same period in 2022.

A pre-tax loss of N67.8 billion for the half year was lowered by a tax credit of over N20 billion to create a net loss of N47.6 billion at the half year. This is a plunge from a pre-tax profit of N25.7 billion and an after-tax profit of N18.7 billion in the period last year.

The company lost N5.73 per share at the end of half-year operations, down from earnings per share of N2.32 in the same period in 2022.

At over N79 billion, input costs rose by N4 billion or 5.5 percent, showing an increased cost per unit of sales from 55 kobo to 64.4 kobo over the review period.

That sent gross profit crashing down by N18.6 billion or 29.7 percent quarter-on-quarter to less than N44 billion at the end of the first quarter.

Further pressures were experienced from both sides of cost and income. Other income dropped by 58.5 percent to N356 million.

Selling and distribution expenses grew by 3.4 percent to N33.7 billion while administrative costs rose by over 10 percent to N8.2 billion.

There was also a net charge of N441.6 million for financial asset losses in the first quarter against a net write-back of N451.5 million in the same quarter in 2022.

The cost-income imbalance almost consumed gross profit, slashing operating profit from N23.7 billion to less than N1.9 billion over the review period.

The upsurge in net finance costs created a pre-tax loss of N17.4 billion at the end of the first quarter, plunging from a pre-tax profit of N20.8 billion in the same quarter in 2022.

The only cost savings in the quarter came from tax expenses that dropped from over N7 billion to a credit of N6.7 billion over the review period. That erased part of the pre-tax loss and left a bottom line still in the red to the tune of N10.7 billion at the end of the first quarter.

This was equally the earnings story of the company at the end of last year when a drop of over 62 percent in income tax expenses changed the reading from a drop of about 27 percent in pre-tax profit to a little over N17 billion to a moderate increase of 4 percent in after-tax profit to N13 billion.

Nigerian Breweries managed to keep recovery in motion for the second year in 2022 after three years of running profit drop hit an N7.4 billion low in 2020. The strength for recovery appears completely broken with the first quarter loss and any upside force that could break the increasing loss momentum is yet to be seen.

The company ended the first quarter with a loss of N1.29 per share, down from earnings per share of N1.69 in the same quarter in 2022. It closed last year’s trading with earnings per share of N1.58 and paid a final cash dividend of N1.03 per share in addition to an interim cash dividend of 40 kobo per share.