Nigerian Breweries is expected to step up profit growth for the second year in 2014 from a stable improvement in sales revenue. The company is maintaining its leading market share in the breweries sector and boosts of having the most stable record in sales revenue growth in the sector. To the advantage of stable revenue growth, the company has added improving profit margin. These provided the strength for the accelerated profit growth last year. They are again the driving forces of accelerating profit growth in the current year.
Mr. Nicolaas Vervelde, managing director/chief executive officer of Nigerian Breweries, converted an increased share of the naira of sales revenue into profit for shareholders in 2013. He seems set to repeat that performance in the current financial year. That seems to be a good answer to the question of how to grow profit in a slowly growing industry. There is an increased use of trade credit to induce sales and this is affecting cash flow negatively.
The company grew profit by 13.2% in 2013 out of an improvement of 6.3% in sales revenue. The stronger growth in profit than revenue is expected to be repeated in 2014. At the end of the second quarter, sales revenue increased by 5.7% to N141.49 billion year-on-year. This is a step up in revenue growth from the N68.98 billion in the first quarter. Based on the second quarter growth rate, sales revenue is projected at N286.8 billion for Nigerian Breweries at the end of 2014.
The projected revenue figure for the company will be an increase of 6.8% over the full year turnover in 2013. This will be a step up from the improvement of 6.3% in sales revenue in the preceding year. The company has been able to grow sales revenue every year over the past five years, from N164.2 billion in 2009 to N268.61 billion in 2013.
The company earned N23.87 billion in after tax profit at the end of the second quarter, which is a rise of 15.5% over the corresponding figure last year. It is an accelerated growth from the first quarter figure of N10.06 billion. If the second quarter growth rate is maintained to full year, after tax profit is expected to stand in the region of N50 billion for Nigerian Breweries in 2014. That will be an increase of over 16% from the net profit figure of N43.08 billion the company posted in 2013.
Nigerian Breweries had raised after tax profit by 13.2% in 2013 after a flat growth in the preceding year. Except in 2012 when profit declined slightly, the company has improved profit every year in the past five years. Against the accelerated growth in profit expected this year, Guinness Nigeria is likely to record a drop in profit in its 2014 financial year already ended June.
A continuing gain in profit margin is Nigerian Breweries’ key strength in profit performance. Net profit margin improved from 15.1% in 2012 to 16% in 2013. A further improvement has been recorded at 16.9% at the end of the second quarter of the current year, improving from 14.6% in the first quarter.
Two major cost elements moderated during the review period and enabled the company to improve profit margin and step up profit growth. These are distribution/administrative expenses and interest charges. Distribution/administrative cost increased only slightly at 1.1% to about N35.14 billion in the second quarter. This is against an increase of 5.7% in sales revenue, thus saving revenues for the company.
A big cost saving was made from interest expenses, which dropped by 48.2% to N1.78 billion during the review period. The drop accounted mostly for the improvement in profit the company recorded in the second quarter. The drop in interest expenses is however against an increase of 40.6% in current financial liabilities to N8.96 billion and an advancement of 144.4% in non-current financial liabilities to N22 billion over the closing figures in 2013.
Other major changes in the balance sheet over the first six months of the year include an increase of 16.6% in inventories to N24.07 billion, an upsurge of 92.2% in trade and other receivables and a drop of 55.8% in cash and bank balances to N4.21 billion.
The changes in the balance sheet resulted in cash flow constraints for the company during the review period. Net cash flow from operating activities dropped by 31% to N28.07 billion, which was insufficient to meet cash requirements for investing and financing activities. The company closed the second quarter with a net cash decrease of N5.31 billion.
It earned N3.16 per share at the end of the second quarter, up from N2.73 in the corresponding period last year. Earnings per share is projected at N6.61 for Nigerian Breweries in 2014. The company earned N5.49 per share at the end of 2013 from which it paid a dividend of N4.50 per share.
