October 31, 2022/Cordros Report
International Breweries Plc (INTBREW) published its Q3-22 (9M-22) unaudited results over the weekend, reporting a loss per share of NGN0.12 in standalone Q3-22 (vs EPS of NGN0.08 in Q3-21), translating to a smaller loss per share of NGN0.10 in 9M-22 (-80.8% y/y). The negative outturn in earnings was driven by a decline in gross margin (-768bps y/y) and higher net finance cost (+46.0% y/y).
Revenue grew slowly by +5.6% y/y (9M-22: +25.2% y/y) in Q3-22, underpinned by lower volume growth due to supply chain constraints. Sequentially, revenue declined by 9.0% q/q, as higher excise duties expense in the period impacted revenue growth.
Gross margin declined by 768bps to 21.1% in Q3-22 (9M-22: +685bps to 25.3%), as the company booked a relatively higher cost of sales than revenue. Specifically, the cost of sales grew by 17.0% y/y, which in our view, is indicative of higher input and overhead costs amid the high inflationary environment.
Unsurprisingly, INTBREW recorded an operating loss of NGN3.94 billion (-1176.1% y/y), while EBITDA (-27.3% y/y) printed NGN5.98 billion, owing to the contraction in gross margin amid slightly lower operating expenses (-1.7% y/y).
Elsewhere, net finance costs grew by 46.0% y/y to NGN727.95 million in Q3-22, underpinned by an increase in finance costs (+39.4% y/y) amid a 32.1% y/y growth in finance income. We highlight that the higher interest expense on INTBREW’s lease liabilities (+110.5% y/y) underpinned the higher finance costs.
INTBREW’s pre-tax loss surged by 3439.2% y/y to NGN4.67 billion in Q3-22. Thus, following a tax credit of NGN1.53 billion, the loss after tax came in at NGN3.15 billion in Q3-22 (vs PAT of NGN2.22 billion in Q3-21).
Comment: INTBREW’s Q3 performance is unimpressive, in our view, considering the significant decline in margins in the period though we acknowledge the cost headwinds prevalent in the operating environment. In addition, we are concerned that the brewer has declared losses for two consecutive quarters. As a result, we remain cautious on the stock as we expect cost pressures to continue weighing on INTBREW’s margins in the near term. Our estimates are under review.
