MON. 03 APRIL 2023-theGBJournal | International Breweries Plc (INTBREW) suffered pre-tax loss of N26.84 billion (2021FY: N19.84 billion) in 2022FY, with the loss after tax settling at N21.63 billion in 2022FY (2021FY: NGN17.66), following a tax credit of N5.22 billion (+139.4% y/y).
The brewer published its 2022FY audited results over the weekend, also reported a higher loss per share of N0.81 in 2022FY (2021FY: N0.66).
The poor performance in the period stemmed from the combined impact of weaker gross margins (2022FY:20.0% | 2021FY:25.4%) and higher net finance costs (+207.3% y/y).
Revenue for the period grew by 19.9% y/y. In our view, the higher topline figure results from price increases across its products portfolio and other revenue management initiatives amid consumers’ price sensitivity and the highly inflationary environment.
On a q/q basis, revenue increased by 8.0%, benefitting from pricing actions.
Following the increase in the cost of sales (+28.7% y/y), the gross margin deteriorated further (-544bps y/y) to 20.0% in 2022FY (2021FY: 25.4%).
We believe the elevated costs were largely due to higher energy prices, FX illiquidity, commodity costs headwinds, severe weather conditions (longer rainy season and floods in key markets), and overall inflationary pressures. For clarity, INTBREW recorded a 24.4% y/y increase in raw materials consumed and allocated overheads in the period.
EBITDA margin weakened to 9.9% in 2022FY (2021FY: 11.5%) owing to the steep contraction in gross margin amid moderation in OPEX (-5.1% y/y).
INTBREW continues to struggle with elevated net finance costs (+207.3% y/y), as higher finance costs (+122.5% y/y) masked the growth in investment income (+71.8% y/y) in the period. We attribute the higher finance costs to the significant increase in INTBREW’s interest on bank overdrafts (2022FY: NGN1.76 billion | 2021FY: NGN30.19 million).
Compared to major peers, INTBREW is still facing significant variable cost pressures as evident in the steep decline in gross margin.
‘’It is no surprise that the brewer has posted losses consecutively for the past five years on the heels of higher cost pressures (especially OPEX and debt service costs),’’ said Cordros Research analysts.
‘’In our view, the company’s return to profitability will depend on sturdy revenue and cost/risk management policies and its ability to preserve margins. However, given the current cost realities, this may prove challenging. Hence, we are pessimistic on INTBREW’s ability to turn the tide in the near term,’’ Codros added.
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