Nigerian Breweries sales drag on weak consumer spending

 

Nigerian Breweries plc sales rose at the slowest pace in a year as the country’s biggest brewer continues to capitulate to weak consumer spending amid falling oil prices.

For the first three months through March 2015, Nigerian Breweries’ (NB) net income was flattish at N10.10 billion, while sales increased by a mere 1.37 percent to N69.21 billion. The slow growth can be attributed to waning discretionary spending by consumers caused by falling oil price and the fuel hike of 2012.

Nigeria’s consumer inflation hit 8.5 percent year-on-year in March, up slightly from 8.4 percent in February, according to the National Bureau of Statistics (NBS).

“NB’s Q1 results indicate that beer demand is yet to recover from the prevailing headwinds including the tough macro environment and the weak consumer discretionary spend,” said Tunde Abidoye, equity research analyst with FBN Capital in an April 24 research note to Business Day.

The aforementioned challenges are remote cause of the faltering performance by NB as increasing competition from non-alcoholic beverages as well as other alcoholic beverages, excluding beer, continues to stunt growth of beer makers.

“In addition, down-trading by consumers to cheaper value brands continues to hurt the two largest brewers, NB and Guinness Nigeria, whose flagship brands are in the mainstream and premium segments respectively,” said Abidoye.

Beer drinkers in Africa largest economy Nigeria are shifting taste to cheaper brand like Alomo Bitters and Oshomo bitters, which continue to challenge the market share of beer market.

Further analysis of the NB showed the company was able to keep production costs as its cost of sales ratio remain flattish at 53 percent while cost of sales increased by 2.36 percent to N37.42 billion.

Gross profit remained flattish at 47 percent, while gross profit was also falttish at N32 billion. This means the company is effectively controlling direct costs attributable to projects.

Operating expenses were down by 5.03 percent to N16.25 billion in 2015 from N17.13 billion in 2014, while operating expenses (OPEX) margin reduced to 23.24 percent in 2015 from 24.83 percent in 2014. It means NB is reducing costs spent in generating every N1 of sales.

Finance charges were up by 21 percent to N3.46 billion in 2015, compared with N2.85 billion as of March 2014.

The company has introduced new product into the country’s competitive market, which analysts say is a strategy one shaving the effects of stiff competition

“NB recently launched the ACE Roots herbal brand to directly compete with the Orijin brand of its closest rival, Guinness Nigeria. Orijin’s marked success has seen it contribute strongly to Guinness’ unit volume and profits,” said Abidoye.

The NB is using inorganic growth strategy to increase its share of the market, magnifying shareholders wealth as it acquired Consolidated Breweries (CB) plc, another major brewer. Its share price closed at N151 on the floor of the exchange.