Nigeria’s largest Beer maker, Nigerian Breweries (NB) plc has posted its first profit in two years in Q3’20 as the easing of lockdown restrictions pushed up alcohol sales in Q3.
The Brewer’s profit after tax rose to N1.35 billion in the third quarter of 2020 compared to a loss of N1.o4 billion in the same period last year and N83.9 million in Q2’2020.
The Q3 performance comes at a time where Brewers have been hard hit by reduced sales amid the pandemic. NB’s stock closed 0.96 percent higher at N52per share, Friday.
Analysts at investment bank, Cardinal Stone, say the improvement in earnings mostly reflected a rebound in sales following the easing of lockdown restrictions and a decline in marketing & distribution costs.
Marketing and distribution expenses dropped by 7 percent to N17.8 percent in Q3’20 from N19.3 billion in Q3’19.
“The increase in profit is as a result of the relaxation of the lockdown in Q3, in Q2 the lockdown made it difficult for the brewer to push volumes,” Yinka Ademuwagun, a consumer goods analyst at United Capital.
Analysts also say the surge in profit could be as a result of the increase in Value Added Tax (VAT),
“Nigerian Breweries is reaping the harvest of the increase in VAT to 7 percent from 5 percent which took effect in February but the benefit could not be realised in Q2 because of the lockdown,” said Abiola Gbemisola, a research analyst at Chapel Hill Denham.
“Bars, restaurants and clubs have reopened and purchases have resumed hence driving revenues and profits,” Gbemisola said.
The beer maker’s Earnings per share also increased by 500 percent to N78 per share in Q3’20 compared to N13 per share in Q3’2019.
NB’s revenue is up 25.5 percent to N82.2 billion, the highest in six years, in Q3’20 compared to N65.4 billion a year ago, outperforming Guinness Nigeria which saw revenue rise 11.9 percent in the same period.
According to analysts at CardinalStone, pent up demand due to lockdown restriction in markets (such as Lagos and Oyo state) flowed back into space following the lifting of some containment measures to boost volume growth in Q3’20.
Cost of sales rose 25.6 percent to N51.4 billion in Q3 compared to N40.9 billion a year ago
Despite rise in cost, gross profit surged 25 percent to N30.8 billion in Q3 compared to N24.5 billion a year ago.
NB has also announced that shareholders will be paid an interim dividend of 25 kobo per share, which will be paid electronically in December (1st) 2020.
Profit before tax jumped to N2.63 billion wiping out the N2.1 billion loss recorded in Q3’19.
Finance income surged 209 percent to N92.7 million in the period under review from N30 million a year ago. While Finance cost rose 70 percent to N4.9 billion compared to N2.9 billion in Q3’19.
Net finance cost jumped by 66.1 percent to N4.8 billion in Q3’20 to compared to N2.89 billion.
According to analysts at Cardinal Stone, this jump is as a result of a significant increase in bank overdraft and short-term debt.
The brewer’s bank overdraft and short-term loans surged by 85.1 percent in the first half of the year and by 161.6 percent in the first 9 months of year 2020.
Outlook for Q4
“The new curfew we have seen on the back of the social unrest could negatively affect the brewer. The curfews in some states including Lagos could affect their ability to push volumes but the effect should not be massive.
Q4 should also show a positive performance for NB because historically, brewers report a better performance in Q4 because of the festive season”. Ademuwagun said.