Nigerian Breweries reports worst quarter in 5 years due to forex losses and rising debt

Nigerian Breweries, a subsidiary of Heineken NV, had a difficult first quarter of 2023. The company’s losses on foreign exchange transactions and rising debt were the primary causes of this.

The net loss on foreign exchange transactions increased by 680% in the first quarter, reaching N14.641 billion. This follows a 274% increase in 2022.

These losses, combined with higher interest expenses, resulted in a loss after tax of N10.72 billion for the quarter. This is the company’s worst performance in five quarters.

The company’s profitability has been significantly harmed by the ongoing losses on foreign exchange transactions and high-interest expenses. In 2022, the company’s profit after tax only increased by 4.06%, indicating a challenging financial year.

This trend continued in the first quarter of 2023, with profitability declining further. This reflects the ongoing economic challenges and policy-induced realities that have put a strain on the company’s financial performance.

The Central Bank of Nigeria introduced new currency notes in December last year, which created a cash scarcity. This affected Nigerian Breweries’ sales performance, as the company relies heavily on cash for about 80% of its retail sales. The scarcity had a detrimental effect on operations, as it led to a decline in net revenue of about 10% in Q1. This was likely due to reduced customer spending and purchasing power caused by the shortage of cash.

The company also faced challenges related to inflation and the shortage of dollars, which led to increased costs for inputs. Nigerian Breweries attempted to offset these rising costs by raising prices, but it was not enough to fully counterbalance the impact on its financials.

Analysts had initially projected a 14% sales growth for Nigerian Breweries in 2023, considering the company’s strong revenue growth of 25.91% in the previous year. However, the impact of ongoing policy changes and the challenging economic environment may result in revised estimates.

Nigerian Breweries’ loan net book value increased significantly in Q1, reaching NGN192.83 billion. This raises concerns about the company’s debt levels and financial stability.
The company’s reliance on short-term and bank loans is a major risk factor. In 2022, 98% of total loans were short-term and 96% were bank loans. This exposes the company to potential risks related to vulnerabilities, interest expenses, financial stability, and liquidity risk.

Over the past five years, Nigerian Breweries has experienced a negative compound annual growth rate (CAGR) of -7.47% in its profit after tax. This declining profitability raises concerns about the company’s ability to generate sustainable earnings and maintain financial stability.
The company’s loss after tax of NGN10 billion in Q1 2023 further emphasizes the challenges faced by Nigerian Breweries.

These financial struggles and negative performance have undermined investors’ confidence in the company. The company’s share price has gained 6.59% year-to-date, lagging the broader market’s return of 15.83%. It currently ranks 99th on the NGX in terms of share price performance.

To mitigate the challenges faced, Nigerian Breweries needs to focus on generating more revenue, exploring local sourcing of inputs, and reducing reliance on imported components.

Implementing strategies to manage foreign exchange risks, optimize costs, and improve financial performance will be crucial for the company’s overall financial health and to regain investors’ confidence.

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