IntBrew Profit Tumbles 62% despite Tax Credit
Despite receiving a tax credit of N3.33 billion, International Breweries (Ticker: IntBrew) loss jumped 61.8% to N13.887 billion. The company’s revenue was boosted significantly in the first half of 2021, rising 35.2% to N81.892 billion from N60.614 billion in the corresponding period in 2020.
However, this never translates to profitability. For the brewer, turnover has been more important to provide, calling to question its low-price, heavy penetration strategy.
The brewer’s low-cost strategy has continued to support increased sales. However, this has not translated to improve profitability due to sturdy costs profile.
The company’s key metrics were worse off in the first half despite improvement in topline, it could not sustain the upsurge down the line. Apart from gross profit margin, other performance metrics end in red. The operating margin was negative along with pre and post-tax margin – leaving nothing to cheer.
Its operating expenses remained heavy, in addition to inflationary worries on production cost. Unfortunately, the brewer’s also has to contend with external factors outside its control purview – the devaluation of Naira.
Earnings before interest tax, depreciation and amortisation margin slowdown just like pre and post-tax profits margin in the first half. IntBrew net profit margin printed negative at 16.7% in the first half of the year, worsened from 13.9% last year.
The company breaks value successively, casting doubts on its future in the beer market amidst declining household spending plans.
The brewer lost N0.52 kobo on each share deployed for operation in the first half, 2021. At the Nigerian Exchange, Investors currently value IntBrew at N136.996 billion on 26.862 billion shares outstanding.
The stock price is quoted at N5, meaning that shareholders may not get a dime as dividend despite constrained price movement.
Balance sheet review shows that year to date, International Breweries has seen a strong decline in its shareholders’ fund due to widening losses. In the first six months of 2021, the company retained losses expanded from N15.305 billion to more than N29 billion.
The N29.93 billion retained loss reported in half-year result was due to N15.305 billion carried forward into 2021 plus fresh loss after tax sustained in the first half. Thus, the company’s total equity tumbled to N143.55 billion in the period, from N151.733 billion as of the financial year 2020.
International Breweries however saw an improvement in its cash and cash position amidst an increase in receivables and inventories. Last year, the company raised N162.775 billion from the right issue and repaid a loan of N164.526 billion. Its financial strategy effectively changes the nature of the borrowing, from short to long term liabilities.
The brewer’s raised N113.649 billion from borrowings in the first half of 2021, thus provide cash buffer for cash lockdown via increased stocks and receivables.
Analysts note the increased in cost of sales was driven by a 27.8% year on year growth in material cost to N48.88 billion due to the heightened foreign exchange concerns and rise in the prices of local inputs.
CardinalStone Partner is note said last year was an especially challenging year for brewers globally, given the change that the pandemic brought to social interactions.
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With lockdowns limiting physical patronage of stores and alcohol on-trade sales points, sales slumped across the board. Across International brands, Heineken and ABInBev reported contractions in sales respectively; In the Nigerian market, Sales contracted about 12% on average in Q2-2020.
Furthermore, the pandemic’s impact was sharply felt across supply chains, significantly multiplying the risk of disruptions to beer production. Again, this was especially worse for Nigerian Beer makers especially those who use barley, given that the crop is barely produced in Nigeria.
