July 30, 2021/CSL Research

International Breweries continued its spate of double-digit Revenue growth in Q2 2020, as its H1 2021 scorecard revealed a significant rise (up 35.2% y/y) in topline to N81.96bn from N60.61bn in the corresponding period in 2020. The performance further builds on the 10.2% y/y growth recorded in Q1 2021, as Revenue grew 10.4% q/q.

Cost of Sales (adjusted for depreciation) expectedly grew 32.0% y/y to N59.50bn in H1 2021 from N45.08bn in H1 2020. We note the rise in Cost of Sales was driven by a 27.8% y/y growth in Material cost to N48.88bn due to the heightened foreign exchange concerns and rise in the prices of local inputs. Nonetheless, the firm’s Gross profit still grew significantly, up 44.5% within the period. Gross Profit Margin came to 27.4%, 1.8ppts higher than the corresponding period in 2020.

Operating Expenses (adjusted for depreciation) continued to rise, up 11.26% y/y to N9.27bn in the period. We note that despite the improvement (down 10.4% y/y to N5.92bn) in Administrative Expenses (adjusted for depreciation), the significant growth (up 94.0% y/y to N3.35bn) in Marketing and Distribution Expenses (adjusted for depreciation) led to the growth in OPEX. Consequently, the firm’s EBIDTA was down 47.7% y/y to N16.17bn in H1 2021 from N10.12bn, while EBITDA margin declined 3.6ppts to 2.2% in the period. We note that the firm just like other brewers is feeling the burden of a stagnant brewery sector in terms of market share, given it has continually had its performance from core business pressured by its fixed cost.

Worthy of note is that in H1 2020, the firm was able to cushion the effect of Net foreign Exchange Loss totaling N11.30bn on its operations with a Gain on Derivatives totaling N6.40bn. The absence of any such gain as of H1 2021, however, left the business with Net Foreign Exchange Loss totaling N11.46bn of which N7.69bn is currently unrealized.  This led to the N11.34bn Loss recorded on other income item line. An item line which ordinarily provides support for the firm’s performance, but in this case, further dragged the performance.

Net Finance Cost fared better in the period as it declined by 13.9% y/y to N0.82bn in H1 2021 from N0.95bn in H1 2020. This was on the back of a significant decline (down 58.15 y/y to N0.95bn) in Finance Cost which masked the fall (down 89.7% y/y to N0.13bn) in Finance Income.  Despite the drop in Net Finance Cost, Loss Before tax rose 53.5% y/y to N16.99bn in the period compared with N10.12bn in H1 2020. Despite receiving a Tax Credit of N3.33bn in the period, the firm’s Loss for the period was N13.65bn, a 61.8%y/y increase when compared with the N8.43bn reported in the previous period.

We are reviewing the firm’s numbers. Current price; N5.10/s