August 3, 2023/CSL Research

International Breweries’ top-line grew marginally y/y. The H1 2023 unaudited numbers showed Revenue declined by 4.2% y/y to N116.13bn (H1 2023) from N111.41bn (H1 2022). We opine that the weakened consumer purchasing power moderated sales volumes as consumers continued to adjust their expenditure pattern in favour of most contingent and basic needs.

The Cost of Sales (adjusted for depreciation) however grew faster than Revenue growth, up 22.4% y/y to N79.43bn (H1 2023) from N68.90bn (H1 2022). Gross Margin declined to 31.6% (H1 2023) from 41.7% (H1 2022). Consequently, Gross Profit was down 21.1% y/y to N36.7bn from N46.51bn in H1 2022.

Operating Expenses (adjusted for depreciation) grew significantly, up 150.8% y/y driven by Net Other Expense which grew significantly to N35.88bn (H1 2023) from N2.4bn (H1 2022) driven mainly by unrealised FX loss of N40.66bn. Consequently, EBITDA turned negative N16.58bn from N25.26bn in H1 2022. 

In the absence of Other Income, and despite a marginal drop in Depreciation & Amortisation by 8.8% y/y to N18.12bn (H1 2023) from N19.85bn (H1 2022), the company recorded an Operating Loss of N34.69bn (H1 2023) compared with N5.41bn Operating Profit in H1 2022. 

In H1 2023, the company’s Finance Income grew higher by 192.4% to N6.43bn from N2.2bn (H1 2022) despite a 43% decline in Cash and Cash Equivalents to N16.42bn (H1 2023). We believe the company may have re–priced their cash balances with the bank. Finance Cost grew by 127.8% to N13.17bn (H1 2023) from N5.78bn (H1 2022) driven by the growth in long-term borrowings which was up 113.45% to N305.30bn (H1 2023) from N143.03bn (H1 2022). 

The company reported Loss After Tax of N23.59bn compared with N336m PAT in H1 2022, making it the second consecutive loss making quarter. 

We have a sell recommendation with a price target of N2.2/s. Current price is N4.7/s.