July 31, 2023/Cordros Report

International Breweries Plc (INTBREW) published its Q2-23 unaudited results over the weekend (30 July), reporting a more significant loss per share of NGN0.79 in Q2-23 (vs loss per share of NGN0.01 in Q2-22), bringing the H1-23 loss per share to NGN0.88 (vs EPS of NGN0.01 in H1-22). The brewer’s performance in the period was negatively impacted by the significant increase in unrealised FX loss (+452.5% y/y) and higher net finance cost (+221.6% y/y). 
 
In Q2-23, revenue increased by 14.6% y/y. We believe the topline expansion in the period was majorly price-driven, as our finding shows the brewer increased prices by c.12.5% in the year. However, for H1-23, revenue growth grew slower by 4.2% y/y due to the impact of a cash crunch experienced in Q1, which negatively affected revenue generation in the period (-5.4% y/y). Meanwhile, revenue increased by 13.5% on a quarter-on-quarter basis, benefiting from the price increases implemented during the period.
 
Gross margin contracted by 20bps y/y to 23.3% in Q2-23 (Q2-22: 23.5%), following a faster growth in cost of sales (+14.9% y/y) relative to revenue (+14.6% y/y). We attribute the higher cost of sales to increased input and overhead costs, influenced by the prevailing highly inflationary environment.
 
As expected, INTBREW reported an operating loss of NGN31.72 billion in Q1-23, contrasting sharply with an operating income of NGN1.71 billion in Q2-22. The loss resulted from a substantial 20.4x increase in other expenses, totalling NGN33.31 billion (Q2-22: NGN1.71 billion). The surge in other expenses was primarily due to a significant unrealised foreign exchange loss of NGN41.89 billion (+452.5% y/y).
 
Further down, net finance costs surged by 221.6% y/y to NGN5.60 billion in Q2-23 (Q2-22: NGN1.74 billion), primarily driven by a substantial rise in finance costs (+253.3% y/y). The higher finance cost was mainly due to increased interest expenses on loans, which escalated by 343.5% y/y. Specifically, the brewer’s loans and borrowings grew by 85.9% y/y to NGN360.76 billion in H1-23, contributing to the higher finance costs incurred during the period.
 
As a result, the brewer posted a pre-tax loss of NGN37.32 billion (vs pre-tax loss of NGN32.07 million in Q2-22). Thus, following an income tax credit of NGN16.03 billion in the period, the loss after tax settled at NGN21.29 billion in Q2-23 (vs loss after tax of NGN384.97 million in Q2-22).

Comment: INTBREW’s lacklustre performance reflects the brewer’s ongoing struggle to achieve positive earnings since Q1-22. Like other industry players, the company also experienced cost pressures stemming from the devaluation of the naira and higher finance costs. Looking ahead, we expect the company’s revenue to benefit from better cost-reflective prices and increased volume growth. Nevertheless, our short-term outlook for the brewer remains unimpressive, as we expect earnings to remain dampened by the challenging operating environment, particularly with the devaluation of the naira.  Our estimates are under review.