May 2, 2024/Cordros Report
International Breweries Plc (INTBREW) published its Q1-24 unaudited results after the close of business on Tuesday (30 April), reporting a higher loss per share of NGN2.25 in Q1-24 (vs. loss per share of NGN0.09 in Q1-23), driven by a substantial FX loss of NGN92.44 billion (Q1-23: NGN2.67 billion) and net finance costs (+668.2% y/y).
Revenue grew significantly by 89.7% y/y (Q1-23: -5.4% y/y) in Q1-24, supported by better cost-reflective prices and moderate volume growth. Findings from our channel checks revealed that the brewer took price increases of c. 18.9% YTD. Meanwhile, on a quarter-on-quarter basis, revenue grew by 28.0%.
Gross margin continued its descent, dipping by 336bps y/y to 28.0% in Q1-24 (Q1-23: 31.3%), as the company recorded a higher cost of sales balance (+99.0% y/y). The elevated costs are primarily due to higher energy prices, the impact of currency devaluation on imported raw materials (particularly barley malt) and domestic inflationary pressures. For context, the brewer recorded a 121.7% y/y increase in raw materials and overhead costs in the period.
INTBREW reported an operating loss of NGN80.58 billion in Q1-24 (vs operating loss of NGN2.98 billion in Q1-23), impacted by a substantial FX loss of NGN92.44 billion (Q1-23: NGN2.67 billion).
Net finance costs (+668.2% y/y) increased significantly, following higher finance costs (+110.5% y/y) arising from increased interest on borrowings (+138.8% y/y) amid the elevated interest rate environment. Notably, loans and borrowings increased by 26.6% YTD to NGN473.88 billion as of Q1-24 (2023FY: NGN374.34 billion).
In conclusion, the pre-tax loss surged by 20.7x y/y to NGN89.35 billion (vs pre-tax loss of NGN4.12 billion in Q1-23). However, the loss after tax settled lower at NGN60.39 billion in Q1-24 (Q1-23: NGN2.31 billion), following a tax credit of NGN28.96 billion.
Comment: Despite strong revenue growth, INTBREW has faced losses since Q2-22, a trend further exacerbated by currency pressures. Compounding this is the company’s significant debt load, which poses a considerable risk to its profitability outlook. To address this, the company plans to convert debt to equity, which could reduce interest expenses and improve its liquidity position and overall financial health over the medium to long term. In the near term, while we anticipate sustained revenue expansion propelled by additional price hikes and modest volume increases, profitability could remain under pressure due to elevated cost pressures, debt servicing costs and FX challenges. Our estimates are under review.
