Nigerian Breweries: Robust dividend payout to shareholders amid pressure on revenue

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By Kayode Tokede

Nigerian Breweries last Thursday released its financial year ended December 31, 2017 results to the Nigerian Stock Exchange (NSE)- the first listed company to release full year results of 2017.

The multinational breweries manufacturing company recorded impressive growth in profits and dividend though struggled to keep revenue afloat following double-digit inflation and Nigerian economy exiting recession last year for the 3rd quarter of 2017.

However, Nigerian NewsDirect  believes that competition in the economy segment of the beer market, as well as the sustained pressure on consumer spending were responsible for Nigerian Breweries’ revenue slow growth.

The company’s revenue squeezed in the year under review but lower year-on-year finance charges, largely due to reduced loss on foreign exchange transaction that supported growth in profits and increased dividend payout to shareholders.

The production cost was contained amid significant increase in cost of accessing raw materials and consumables.

The management of Nigerian Breweries proposed a final dividend of N3.13 per share, and had paid N1.00 per share in interim dividend last year, making a total dividend of N4.13 dividend payout to shareholders who invested in the company.

The proposed final dividend is around 21per cent higher than the final payout of N2.58 in 2016 and implies a yield of 2.4 per cent.

The company in 2015 and 2014 declared a final dividend of N3.60 and N3.50 per share respectively as management’s desire to deliver good returns on investment to shareholders as part of its commitment to winning with Nigeria.

From the company’s financial position, total assets gained marginal while increased current liabilities dragged working capital to negative territory in 2017.

NB’s ability to meet short-term obligations is not in question, but concerted effort should be channeled at controlling debt.

The company’s share price closed Friday at N131 and we have a target price of N126.9/s and sell recommendation on the company.

Slow growth in revenue

Nigerian Breweries reported revenue growth of about 9.8 per cent to N344.56billion in 2017 from N313.7 billion in 2016.

Revenue generated in Nigeria was at N344 billion as against N313.58 billion in 2016 while export dropped to N121 million from N160.68 million reported in 2016, representing a decline of 25 per cent.

The weak revenue was underpinned by a weaker price / volume mix skewed in favour of value brands.

Nigerian NewsDirect also believes that higher prices of soft agriculture commodities required by brewers was also likely responsible for the year-on-year (y/y) contraction in gross margin.  Barley prices increased by around 24 per cent y/y in the final quarter of 2017.

Cost of Sales grew by 12.8 per cent from N178 billion to N201 billion in 2017 to thrust the company gross profit increase of about 5.9 per cent to N143.5 billion in 2017 from N135.5 billion in 2016.

Consequently, the company’s gross profit margin shrinks to 41.7 per cent in 2017 from 43.2 per cent in 2016 while COS/Revenue grew from Cost of Sales/ Revenue to 58.3 per cent from 56.8 per cent in 2016.

Non-core operating Income gained 260.7 per cent to N2.2 billion from N615 million in 2016, driven by income from Insurance claims.

Total operating expenses grew by 6.5 per cent to N88.6 billion from   N83 billion in 2016 driven by growth in marketing and distribution expenses.

Sequel, the company’s operating Expenses Margin dropped to 25.7 per cent in 2017 from 26.5 per cent in 2016.

In the year under review, the company’s marketing and distribution expenses added nine per cent to N66.9 billion in 2017 from N61.3 billion in 2016 while administrative expenses dropped by one per cent to N21.7 billion as against N21.9 billion reported in 2016.

Growth in non-core business income impacted positively on operating income, gaining eight per cent to N57 billion in 2017 from N52.9 billion in 2016.

With foreign exchange stability, the company’s finance cost thus dropped by 21.9 per cent to N10.66 billion from N13.6 billion in 2016.

The reduction in net interest expense completely offset major growth in profit before tax in 2017.

Specifically, Nigerian Breweries’ reported 17.5 per cent increase in profit before tax to N46.6 billion from N39.67 billion in 2016.

The company’s tax income rose by 20.6 per cent to N13.58 billion to consequently left profit after tax by 16.3 per cent to N33 billion in 2017 from N28.4 billion in 2016.

Growth in profit lifted the company Earnings Per Share (EPS) to N4.13 in 2017 from N3.58 in 2016 based on the profit attributable to ordinary shareholders of N33 billion as against N28.4 billion in 2016 and on the 7,963,580,401 ordinary shares of 50 kobo each, being the weighted average number of ordinary shares in issue ((2016: 7,929,100,888).

Financing Structure

Nigerian Breweries total assets rose by four per cent to N382 billion in 2017 from N367 billion in 2016, majorly driven by current assets that grew by 17 per cent.

Current assets moved from N74.56 billion to N87.49 billion in 2017 while non-current assets inched up by one per cent to N294.7 billion as against N292.6 billion reported in 2016.

Meanwhile, total liabilities also gained by one per cent from N201 billion to N203.9 billion recorded in 2017.

Total equity grew by seven per cent from N165.9billion recorded in 2016 to N178.3 billion.

Liquidity

The liquidity position of the company improved in 2017. Current ratio, which indicates ability of a company to meet emerging finance needs by relating current assets to relative current liabilities, stood at 0.56 times in 2017 as against 0.52 times in 2016. However, the balance sheet structure of Nigerian Breweries remained stable with marginal increase in total assets and improved liquidity.

Though, the company’s working capital is on the negative results, compounded by increased current liabilities.  This balance sheet supports provide a resurgence outlook for the company in years ahead.

Conclusion

Nigerian Breweries maintained stronger performance on its actual performance in 2017. In the last two years, the operating environment remained a challenging one.

The year witnessed reduced consumer purchasing power and increased cost of doing business mainly due to inflation and unstable foreign exchange.

Notwithstanding, the company focused on its through cost leadership and market Leadership supported by Innovation that helped to maintain strong results and deliver good returns on investment to shareholders.

In 2014, the company concluded the legal process which culminated in a merger with Consolidated Breweries Plc resulting in an enlarged company.

As expected, this merger added the company’s strategy on market expansion and varieties.  The future outlook depends on the commitments and choices made by the board and management in terms of attracting more liquidity and increased business operations.

In 2017 the company noted that, the operating environment is expected to be similar to 2016.

In the company statement signed by the Company Secretary/Legal Adviser, Nigerian Breweries Plc, Mr. Uaboi Agbebaku, said “whilst the foreign exchange situation improved in the course of the year, double digit inflation continued to impact on both businesses and consumers. Nevertheless, the company was able to end the year with improved results through continuous focus and execution of the twin agenda of cost leadership and market leadership supported by innovation”.

The Board maintained that whilst there are some early signs of improvement in the macro-economic condition, this is yet to be reflected in consumer confidence. The Board remains confident that the Company has a clear strategy to deliver good returns on investment to Shareholders as part of its commitment to Winning with Nigeria.