NB shares sink to 5-year low as H1 net revenue tanks on cost pressures

Nigeria’s largest brewer by market size, Nigerian Breweries Plc H1 net revenue dropped 1.4percent to N170bn for the half-year period ended 30th June. However, on a quarter to quarter basis, net revenue improved by 4.4percent to N86.9bn in Q2 2019 from N83.2bn in Q1 2019

Cost of Sales however climbed marginally 2percent year-on-year to N98.5bn in H1 2019 from N96.5bn in H1 2018. The higher cost of sales was driven by a 1.1percent year-on-year uptick in raw materials cost.

Consequently, gross profit declined 5.8percent to N71.6bn H1 2019 from N76.08bn in H1 2018.

On a quarter to quarter ba

sis, gross profit climbed higher by 4.3percent to N42.1bn in Q2 2019 from N40.4bn in Q1 2019. Operating Expenses adjusted for depreciation climbed higher by 6.1percent to N42.3bn in H1 2019 from N39.8bn in H1 2018.

The rise in Operating Expenses came as a result of a 10.9percent rise in Marketing & Distribution Expenses adjusted for depreciation to N32.9bn in H1 2019. This was largely due to the brewer’s drive to reclaim lost market share.

Meanwhile, administrative expenses adjusted for depreciation recorded a doubledigit decline of 14.8percent to N6.3bn in H1 2019 from N7.4bn in H1 2018 due to a reduction in staff headcount following the right-sizing exercise done last year.

However, the brewer did not report its gross revenue and excise duty payments; the decline in net revenue was impacted by higher excise duties payment with the second phase of ad valorem excise duty system implemented in June.

An ad valorem tax is a tax whose amount is based on the value of a transaction or of property. It is typically imposed at the time of a transaction, as in the case of a sales tax or value-added tax (VAT).

Abimbola Omotola, an analyst at Chapel Hill Denham, said most brewers in the country are unable to pass the rising cost to the final consumers, who are battling with shrinking wallets after the last economic contraction.

Nigerian Breweries’ net finance cost increased 24.2percent to N5.1bn in H1 2019 from N4.1bn in H1 2018 on the back of lower Interest Income down 9.6percent to N198.5m and higher Interest Expense up 22.5percent to N5.3bn.

The higher interest expense was driven by higher Interest-bearing liabilities up 57.5percent to N43.8bn due to the recent Commercial Paper issuances done by the company to finance working capital.

NB shares tumbled to N50.00 on the floor of the Nigerian Stock Exchange on Wednesday.

Editor: LOLADE AKINMURELE (lolade.akinmurele@businessdayonline.com) Graphics: David Ogar