Nigerian Breweries (NB) published its Q2-21 unaudited results after the market close last week Friday (July 30). The company reported a positive Q2-21 EPS of NGN0.02, bringing H1-21 EPS to NGN0.97 (H1-20: NGN0.70). The growth in EPS was driven by a surge in revenue (51.0% y/y in Q2-21) — the highest quarterly growth on record.
Net revenue surged 51.0% y/y in Q2-21 (H1-21: +37.8% y/y), driven mainly by a strong recovery in volumes following the reopening of on-trade channels such as clubs, bars, and social event centres in Nigeria. Also, in addition to slight price increases implemented across its premium portfolio in the period, we note that NB did not face any topline pressure from excise duty increases in H1-21 (excise duty was flat at NGN0.35/cl in H1-20).
Gross margin (+200bps) was relatively lower at 37.2% in Q2-21 (Q2-20: 39.0%), despite a 50.1% y/y increase in COGS which in our view is reflective of the rising cost of imported raw materials. Notwithstanding, Gross profit printed NGN37.00 billion in Q2-21, up from NGN24.27 billion in Q2-20, indicating a 52.5% y/y increase. In our view, gross margin has remained resilient, and the performance is indicative of the continued growth in the premium segment.
OPEX rose by 56.9% y/y in Q2-21 to NGN31.74 billion (Q2-20: NGN20.23 billion), with the OPEX/sales ratio coming in at 30.7% (Q2-20: 29.5%). The surge in OPEX was due to a 62.0% y/y increase in Marketing and Distribution expenses reflective of its sustained focus on improving brand visibility. Other income grew 70.5% y/y to NGN0.26 million, which was enough to offset the rise in OPEX. Consequently, EBIT grew by 31.8% y/y to NGN5.52 billion (Q2-20: NGN4.19 billion). However, EBITDA declined by 31.0% y/y due to an increase in depreciation and amortisation expenses (Q2-21: 6.6% y/y to NGN9.90 billion vs Q2-20: NGN9.29 billion) — following PPE acquisition during the period.
Elsewhere, net finance cost increased by 19.1% y/y to NGN7.98 billion in H1-21, as finance costs surged by 21.1% y/y. Although the detailed breakdown of the company’s finance costs was not disclosed, we suspect that the company recorded some FX losses due to exposure from its foreign currency denominated payables. On finance income, we note that the balance of cash and cash equivalents (NGN15.43 billion) in HY-21 is significantly lower compared to HY-20 (NGN57.10 billion), thus resulting in a decrease in finance income (down 27.6% y/y to NGN89.64 million in H1-21).
Overall, PBT grew by 43.1% y/y to NGN11.94 billion in H1-21(H1-20: NGN8.35 billion). However, due to a tax charge of NGN360.89 million in Q2-21 compared to the tax credit of NGN20.56 million in Q2-20, PAT grew much slower by 5.7% y/y to NGN133.37 million in Q2-21. As a result, the company reported an EPS NGN0.02 in Q2-21 (H1-21: NGN0.97).
Industry observers say though NB’s topline performance reflects the firm’s recovery to pre-pandemic levels, we are not entirely optimistic about its bottom-line growth given the tepid economic recovery of the operating environment— FX illiquidity, high inflationary pressures, higher inputs costs amid further currency devaluation are likely to persist throughout 2021. Furthermore, consumers’ price sensitivity poses a downside risk to the brewer’s business. On the flip side, we are impressed with the growth in earnings delivered by Nigerian Breweries, and we believe the company is best-positioned amongst its peers to brave the current macroeconomic headwinds and deliver improved earnings in Q3-21.
