Nigerian Breweries Plc (NB) released its 2Q17 results with revenue up 12% y/y due primarily to price increases taken in FY16. On a sequential basis however, revenue declined marginally by 2% q/q, which suggests that volumes are still likely under pressure from the continued impact of consumers down trading to “value brands”. The Ramadan fasting period will also have contributed to pressure on volumes. Heavy rains in early 3Q17 are likely to pose continued pressure on volumes given that beer consumption is still largely on-trade.
Earnings was boosted by lower net interest and one-off income:. This simply means 2Q net earnings was up by 8% q/q and 43% y/y, tracking ahead of annualised SBGS and Bloomberg consensus expectations by 6% and 29% respectively. NB’s earnings were helped by a 35% y/y reduction in net interest charges and a ten-fold increase in the additional income line of N1.6bn (which NB reports as a one-off event).
Net interest for the six-month period to June 2017 trended lower to N5.2bn from N8.3bn in the corresponding period last year. However, we acknowledge that net interest continues to track significantly ahead of our estimates due to other finance expenses of N3.7bn. We have not modelled FX losses in our estimates given that NB does not have any FCY loans. It is however likely that these other finance expenses are coming from NB accessing the IEFX window for some of its payables and other related trade finance costs.
Gross margin improved to 45% in 2Q17 from 44% in 1Q17 though down from 46% in 2Q16. For the six month period, though gross margin contracted y/y by 200bps to 45%, on a like-for-like basis (excluding accrued royalties and licenses pending NOTAP approval), gross margins actually improved to 48%. EBIT margins expanded at a slightly faster rate helped largely by the one-time other income. Given improved FX supply and continued focus on operating efficiency, it is expected that there would be easing cost pressures to be sustained.
There continues to be a risk to NB’s market share and volumes as consumers show preference for the faster growing economy beer brands. Sbg Securities’ channel checks also show a packaging advantage for NB’s competitors who provide smaller bottle sizes at lower price points, making their offerings more accessible to the price-sensitive consumer.
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