Last Thursday, Nigerian Breweries released its audited results for the 2019 financial year. As expected, there was a slight dip in both topline and bottom line.
- Net revenue declined by 0.4% from N324 billion in 2018 to N323 billion in 2019.
- Profit before tax fell by 20.5% from N29.3 billion in 2018 to N23.3 billion in 2019.
- Profit after tax dipped from N19.4 billion in 2018 to N16.1 billion in 2019, down 17% year on year.
- The company declared a final dividend of N1.51, bringing total dividend payout for the 2019 financial year to N2.01.
- The brewer has thus paid out its entire earnings.
The company attributed the poor results to the increase in excise duties, as well as the challenging operating environment.
For every N131 it made as gross profit, 74.7% or N97.9 went to marketing, distribution and administrative expenses. Finance costs accounted for 34.3% or N12.1 billion of the N35.2 billion it made as operating profit in 2019.
Parent company, Heineken also seems to be at wits end, going by comments made by the Chief Executive Officer, Jean-François Boxmeer during a conference call following the release of its 2019 results.
“Nigeria is my most difficult thing for the moment, to be honest. It is a listed company so you can follow it. The market is growing better, so that is the good news. Pricing is not going anywhere. We have increased last year our prices in November if I recall well, and we just did it again in January but that is because of a VAT increase. Our bigger competitor in the world … recently announced that it will not increase the prices before March. It remains a very tense competitive environment. I do not know where we are going there. We hold up our share. We are still the market leader.”
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Perhaps as a means of countering this, the company has decided to set up its own distribution chain. Tucked in the annual report was a note about 234 stores. According to the firm:
234 Stores Limited is a subsidiary of the Company which was incorporated to explore opportunities in the route-to-market. The subsidiary was run during the year under review as a pilot scheme.
Further down in the statements, the firm states that N100 million was invested.
Possible reasons behind the move
Competition in the brewery space has been stiff with the reinvigoration of International Breweries. Many distributors tend to stock all three products. Carving out its own distribution chain gives it some form of exclusivity.
The move could also lead to higher margins, for the firm, as it would be cutting off distributors who are in the middle. Margins have been squeezed in the beer space, due to the higher excise duties, and intense competition which has made it difficult to raise prices.
Who blinks next?
International Breweries and Guinness Nigeria would be paying close attention to this experiment. If it gains significant mileage, they could decide to replicate.
Early days yet
So how did the experiment fare? Figures from Nigerian Breweries income statement show that 234 and Benue Bottling Company Limited’s earnings are grouped together. BBCL is inactive, so one can safely assume that the numbers are for 234 stores.
It made net revenue of N24.3 million and a profit after tax of N1.1 million, due to finance income. On an operating level, it made a N49 million loss, due to operating expenses.
NB will also need to devote more funds to this, as well as grapple with the infrastructural issues distributors face in the country. The investor call should shed more light on this.
Dangote Cement is creating its own luck
Not only was the company able to basically eliminate Nigeria’s dependence on imported cement, but it also made Nigeria an exporter of cement to other neighbouring nations.
The year 2020 came with good tidings for Dangote Cement Plc. Beyond commissioning its Onne Export Terminal in Port Harcourt and its gas power plant in Tanzania, the group bagged over a trillion in revenue—a 16% jump from its N892 billion turnover in the year 2019. The company also successfully carried out a bond issuance and buyback programme while increasing its capacity by 3 million tonnes in Nigeria. Group sales volumes were up by 8.6% to 25.7 million tonnes across both cement and clinker lines, and finance income increased by 292% to about N30 billion, culminating in a profit before tax of N373 billion. Not bad at all for a pandemic-stricken year. Interestingly, most of these didn’t come by chance; the company appears to be creating its own luck.
It is not uncommon to see companies significantly increase their administrative or marketing costs in a bid to attain higher turnover. If it is because they believe that there is a direct correlation between how much is spent on overheads or marketing and the increase in revenue, Dangote Cement has certainly proven them wrong. Administrative costs for the year 2020 remained comparatively the same as its 2019 figure and selling and distribution expenses were even marginally lower despite its higher revenue. Hence, despite the circa 49% increase in taxes from its previous year disbursement, Dangote Cement still attained a profit of N276 billion for the year—38% higher than the previous year.
Increased investments (& Liabilities)
While it is true that you need to spend money to make money, expenses don’t do much when it comes to growth—investments are what make all the difference. Dangote Cement currently has its operations in Cameroon (1.5Mta clinker grinding), Congo (1.5Mta), Ghana (1.5Mta import), Ethiopia (2.5Mta), South Africa (2.8Mta), Tanzania (3.0Mta), and Zambia (1.5Mta), amongst others. In addition to its 32.25Mta production capacity in Nigeria, it now boasts a total of 48.6Mta capacity across Africa.
Not only was the company able to basically eliminate Nigeria’s dependence on imported cement, but it also made Nigeria an exporter of cement to other neighbouring nations. Its financials reveal a 15% increase in PPE to N1.4 trillion, also leading to a proportionate increase of 16% with N2 trillion in total assets. The downside? A 34% increase in total liabilities to also over a trillion, with both current and non-current liabilities increasing from prior year figures. With the higher demand for cement following recovery infrastructure spending, demand for more concrete roads, and increasing real estate development projects, its investments and industry monopoly will, however, place it in one of the best positions it can be. Consequently, it still has some of the best long-term credit ratings globally—and expectedly so.
The Chief Executive Officer, Michel Puchercos, in his notes on the results, revealed that Dangote Cement experienced its strongest year in terms of EBITDA and volumes; he also attributed a lot of it to their increased focus in protecting their people, customers, and communities particularly from the impact of the pandemic. Earnings per share, as noted in the results, was up 36.9% to ₦16.14 and proposed dividend was maintained at ₦16.00 per share. The company has paid more dividends to shareholders in the last five years than any other company on the NSE. However, with its cement rumoured to be one of the most expensive globally, offering value to its investors is certainly the least it can do.
Ecobank: Pan African challenges weigh in on the company’s results
The group, through its Nigerian subsidiary, continued to take a hit resulting from its 2011 acquisition of Oceanic Bank.
ETI recently published its audited consolidated financial statements for the year ended 31 December, 2020.
Year-on-Year, revenues were up 4 percent to USD1,679.8 million while operating profits before impairment losses were also up 14 percent to USD625.7 million. Net interest income also increased by 21 percent on the back of a 27 percent decrease in interest expense, while customer deposits increased by 13 percent to USD18.3 billion.
However, apart from these, not so much else was great about the results. For example, profit before tax and goodwill impairment was down 17 percent to USD337.88 million, while profit for the year was down 68 percent year-on-year to USD88.32 million.
ETI faced several headwinds during the year that ultimately contributed to the performance. The group, through its Nigerian subsidiary, continued to take a hit resulting from its 2011 acquisition of Oceanic Bank. The effect on the profit after tax in 2020 was a USD163.56 million impairment charge in FY 2020.
In addition, a USD61million monetary loss was charged to the group’s profit resulting from the hyperinflationary economies of Zimbabwe and South Sudan where it operates. According to the Zimbabwe National Statistics Agency, Zimbabwe’s annual inflation eased to 348.59 percent in December 2020, compared with 401.66 percent in the previous month. To put this in perspective, South Sudan’s inflation rate on the other hand was estimated at approximately 58 percent at the end of 2020.
Perhaps further exacerbating the not-so-good results, the group effectively incurred a significant tax rate of 52.25 percent in 2020 compared to 33.3 percent for the same period by December 2019. A combination of these events caused a year-on-year decline in profit after tax by 57 percent, to USD174.32 million at the end of 2020 (2019: USD405.8 million).
The tough operating environment brought about by the global pandemic also impacted the results. While loan and advances and impairment charges were relatively flat in 2020, a significant portion of its loan book received regulatory forbearance, which meant that customer repayments of loan principals were deferred by up to 12 months.
Also, the group’s NPL ratio remained higher than the regulatory NPL limit while Ecobank Nigeria’s NPL was higher than the Group’s NPL ratio. The write-offs arising due to goodwill impairment in Ecobank Nigeria as well as hyperinflation in Ecobank operations in Zimbabwe and South Sudan affected the group’s regulatory capital ratios.
Although the group remained compliant with the minimum regulatory capital adequacy ratio requirements, its Tier 1 Capital Adequacy Ratio declined from 8.8 percent FY2019 to 8.5 percent FY2020 while Total Capital Adequacy Ratio also declined from 11.6 percent FY2019 to 11.5 percent FY2020. The minimum capital requirements were 7.25 percent Tier 1 and 9.5 percent, Total Capital, respectively.
In January 2021, Ecobank Nigeria raised N50 billion in subordinated debt from Development Bank of Nigeria with a 10-year tenor at 6.5 percent. It also in February 2021 raised USD 300 million in form of a 5-year, fixed-rate, US dollar-denominated bond. These amounts will improve the Nigerian subsidiary’s capital adequacy ratio.
ETI groups its African operations into four geographical regions. The reportable operating segments are Nigeria, Francophone West Africa (UEMOA), Anglophone West Africa (AWA), and Central, Eastern and Southern Africa (CESA). Unlike other Nigerian Deposit Money Banks with International presence that outperform their African and international subsidiaries, the reverse appears to be the case with Ecobank Nigeria within ETI. Among the four geographical regions, Ecobank Nigeria contributed the least to the operating income, operating profit, as well as profit before tax in FY2019 and FY2020. Reported RoE were also 26.9 percent, 18.6 percent, 16.1 percent and 4.2 percent in the AWA, UEMOA, CESA and Nigeria regions in 2020 (against 30.1 percent, 22.8 percent, 23.6 percent and 0.4 percent in 2019 respectively).
ETI’s overall performance depends on whether the results are reviewed from a Naira or Dollar perspective as some of the results were better in Naira than when reported in Dollars. The group lost about USD8.6 million as a result of exchange differences on foreign currency translation of foreign operations. ETI perhaps also seems to be affected by the poor performance of some of its acquisitions as well as its operations in some African countries where it has its presence.
Its earnings per share as of December 31, 2020 was 0.010 (cents) as against 0.778 (cents) for the same period in 2019.
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