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Initial View: Nigerian Breweries Plc Q4 17 - Lower FX losses offset second-rate topline

• Late yesterday, Nigerian Breweries (NB) released its FY 17 result for the year ended 31st December wherein it reported revenue growth of 10% and earnings growth of 16.3% YoY to N33 billion, below pre-recessionary levels and translating to an Earnings Per Share (EPS) of N13. The company declared a final dividend of N3.13 which combined with interim dividend of N1.00 amounts to total dividend of N4.13, maintaining its 100% dividend pay-out policy since 2015. Based on current market price, final dividend translates to a dividend yield of 2.5%.
• Isolating the fourth quarter revealed revenue contraction (-1.3% YoY to N9 billion) despite higher prices YoY across all products. The topline contraction reflected volumes pressure which we think emanated from lower volumes across premium and mainstream segment. Commentary from the parent company – Heineken – revealed that volumes declined mid-single digit over 2017 amidst weak consumer confidence, fragile economic growth, and pressured consumer wallets. Consequently, in terms of volume composition, value brands continued to outperform products in the mainstream and premium segments, according to Heineken. Consequently, unlike in prior years wherein Q4 contributed the highest to topline (average: 28.1%), Q4 2017 contribution dipped to 26%, lower than 26.5% for Q1 2017.
• Nigerian Breweries continued to face input cost pressures as Cost of Goods Sold (COGS) rose 0.2% YoY relative to revenue decline (-1.3% YoY). The pressure was largely due to higher input costs from Sorghum (+2.0% YoY) and Barley (+16.8% YoY) which overshadowed softer pricing on Sugar (-9.0% YoY) and Maize (-16.2% YoY). Consequently, gross margin contracted 87bps YoY to 41%, below its 5-year Q4 trend level of 52%. Additionally, adverse product mix, where lower margin value brands contribute more to topline, exacted a downward pressure on NB’s gross margin (-87bps YoY to 41%). Nevertheless, owing to increased cost cutting measures to drive efficiencies, administrative and marketing expenses declined by 2.6% YoY and 12.8% YoY respectively to drive an 8bps expansion in operating profit margin.
• Largely supporting earnings performance was a 15.4% YoY decline in finance expense, reflecting lower FX losses on its foreign currency liabilities. Against this backdrop as well as the modest expansion in operating profit margin, earnings for the period printed at N0 billion (+8.8% YoY), translating to an EPS of N1.13.
• Currently, NB trades at a P/E of 31.7x compared to Bloomberg Middle and East Africa Peers at 30.9x. Our model is under review.
• Management will be hosting a conference call today, 16th February at 3.00pm Lagos time to discuss its FY 17 financial results. The key speakers will be Mr. Jordi Borrut Bel (Managing Director/CEO) and Mr. Mark P. Rutten (Finance Director). The details of the conference call/ webcast are as follows;

Webcast link: http://view-w.tv/558-1400-19230/en (Kindly register ahead of the webcast)

See attached for full report