October 31, 2023/Cordros Report
International Breweries Plc (INTBREW) released its Q3-23 unaudited results this morning, marking a 50.0% y/y increase in standalone Q3-23 loss per share to NGN0.18 (vs loss per share of NGN0.12 in Q3-22), translating to a higher loss per share of NGN1.06 in 9M-23 (9M-22: NGN0.10). The downturn in earnings was primarily due to a substantial increase in net finance cost (+500.5% y/y).
Revenue grew strongly by 38.0% y/y (9M-23: +14.6% y/y) in Q3-23, underpinned by higher pricing, premiumization and other revenue management initiatives, including efficient resource allocation. Sequentially, revenue increased by 9.6% q/q.
INTBREW’s gross margin increased moderately by 51bps y/y to 21.6% in Q3-23 (9M-23: -824bps to 21.0%), as the company booked a relatively higher revenue than costs (+37.0% y/y). We highlight that elevated input and overhead costs (+39.7% y/y) stoked most of the cost pressures, reflective of the highly inflationary environment. Accordingly, EBITDA margin (+520bps y/y) improved to 18.2%, further supported by a 4.8% y/y decline in OPEX.
However, net finance costs surged by 500.5% y/y to NGN4.37 billion in Q3-23, underpinned by a significant increase in finance costs (+415.8% y/y) amid a substantial (+312.3% y/y) growth in finance income. We highlight that the elevated interest expense on borrowings (NGN5.90 billion | NGN397.62 million in Q3-22) underpinned the higher finance costs. For context, borrowing increased by 65.0% YTD to NGN320.21 billion.
INTBREW pre-tax loss declined by 55.7% y/y to NGN2.07 billion in Q3-23. However, after accounting for a tax charge of NGN2.88 billion (vs tax credit of NGN1.53 billion in Q3-22), the after-tax loss increased to NGN4.95 billion in Q3-23 (Q3-22: NGN3.15 billion).
Comment: Despite the operational challenges, we acknowledge the notable improvement in the brewer’s key fundamentals in the quarter, supported by robust revenue and lower operating expenses. Nevertheless, concerns persist regarding the escalating interest expenses. Consequently, we expect earnings to remain negative in the short to medium term unless the management addresses the company’s excessive debt burden. We believe this action will significantly decrease finance charges, positively impacting cash flow and earnings. Our estimates are under review.
