Nigerian Breweries, a subsidiary of Heineken NV, faced significant challenges in Q1 2023, primarily due to losses on foreign exchange transactions and rising loans.
The net loss on foreign exchange transactions surged by 680%, amounting to N14.641 billion in Q1, following a substantial increase of 274% in 2022.
These losses, coupled with elevated interest expenses, resulted in a loss after tax of N10.72 billion for the quarter, marking the company’s worst performance in five quarters.
The continuous losses on foreign exchange transactions and high-interest expenses have had a significant impact on Nigerian Breweries’ profitability. In 2022, the company’s profit after tax only grew marginally by 4.06%, indicating a challenging financial year.
This trend persisted in Q1 2023 with a further decline in profitability, reflecting the ongoing economic challenges and policy-induced realities that have put pressure on the company’s financial performance.
The introduction of new currency notes by the Central Bank of Nigeria in December last year created a cash scarcity, affecting Nigerian Breweries’ sales performance.
As the company relies heavily on cash for approximately 80% of its retail sales, the scarcity had a detrimental effect on operations. Net revenue declined by about 10% in Q1, 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, leading 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.
The significant increase in the loan net book value, which reached ₦192.83 billion by the end of Q1, raises concerns about the company’s debt levels and financial stability. Short-term borrowings increased by 59% in Q1, while long-term borrowings declined by 13.57%.
The reliance on short-term and bank loans, as seen in the data where 98% of total loans are short-term and 96% are bank loans for 2022, exposes the company to potential risks and challenges 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 loss after tax of N10 billion in Q1 2023 further emphasizes the challenges faced by the company.
These financial struggles and negative performance undermine investors’ confidence in Nigerian Breweries. 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.
