Nigeria: Nigerian Breweries’ Q3 results come as 'negative surprise'

Nigerian Breweries (NB) published its Q3 2017 results which surprised negatively. Sales of N73.7 bln grew by 13% y/y while profit before tax (PBT) and profit after tax (PAT) declined by -84% y/y and -75% y/y to N369 mln and N260 mln respectively, WorldStage reported on October 26.

The y/y sales growth was completely offset by a combination of factors: 1) a -143bp y/y contraction in gross margin to 34.4% 2) a 16% y/y rise in operating expenses and 3) a 47% y/y growth in net finance costs. These negatives led to the significant y/y PBT decline.

PAT declined by a softer margin due to a lower tax rate of 30% vs. a tax rate of 53% in the corresponding quarter of 2016. On a sequential basis, sales were down -18% q/q while PBT and PAT both declined by 98% q/q.

The q/q sales decline is not surprising because of seasonality trends. The end-Sep quarter is usually one of the weaker quarters for the brewers. In addition to the q/q sales decline, Q3 gross margin contracted by -1,103bps q/q and completely offset a 25% q/q decline in net finance costs, leading to the weak bottom line.

On a 9-month basis, sales of N254.7 bln advanced by 14% y/y. PBT and PAT of N34.4 bln and N24.0 bln grew by 24% y/y and 19% y/y respectively. 9-month gross margins contracted by -184bps y/y and operating expenses grew by 11% y/y. However, these were not strong enough to offset the y/y sales growth and a -23% y/y decline in net finance costs, leading to the PBT growth. On an annualised basis, 9-month sales are tracking behind consensus’ FY estimate of N361 bln by 6%. PBT and PAT are behind by 28% on average.