Nigerian Breweries Plc Q1’20 Unaudited Results – Increase in operating cost pressures earnings

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CardinalStone Research

Nigeria Breweries Plc (NB) has announced a 31.4% YoY plunge in earnings to N5.5 billion in its Q1’20 unaudited results. The numbers suggest weaker cost efficiency and pressured operating cash flow.

Some concerns

  • NB reported a 22.4% YoY plunge in core operating earnings to N10.9 billion in Q1’20, following significant increases in marketing & distribution expense (+13.5% YoY) and administrative spend (+16.1% YoY). We believe the high marketing expense reflects increasing promotional intensity in the breweries market
  • The effective tax rate was also 3.5ppts higher YoY in the quarter
  • Cash generated from operations plunged by 61.9% YoY to N4.4 billion in Q1’20, largely reflecting weak working capital management. Notably, the company experienced significant expansions in changes in trade & other receivables and prepayment in the review period
  • Pressure on net operating cash flow was further compounded by a 24.0% YoY increase in Value Added Tax (VAT) in the quarter
Some positives
  • NB was able to keep revenue and cost of goods sold largely steady despite COVID-19 induced crisis in the latter part of the quarter. Specifically, Gross profit margin only contracted by 19bps YoY in Q1’20
  • Despite the over four-fold YoY jump in non-current borrowing, finance cost remained largely subdued (+1.5% YoY) in the review period. The overall moderation in yield environment and a cutback in short term borrowings may have reduced finance cost pressures for the business
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Nigerian Breweries Plc Q1'20 Unaudited Results - Increase in operating cost pressures earnings - Brand Spur

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