July 29, 2024/Cordros Report
International Breweries Plc (INTBREW) published its Q2-24 unaudited results today, reporting a loss per share of NGN1.76 in Q2-24 (Q2-23: NGN0.79), translating to a H1-24 loss per share of NGN3.98 (vs loss per share of NGN0.88 in H1-23). The brewer’s performance was notably affected by a substantial rise in operating expenses (+114.1% y/y) and 11.4x y/y increase in FX losses.
Revenue surged by 94.4% y/y (H1-24: +92.2% y/y) in Q2-24. We believe the topline expansion in the period was mainly driven by higher prices and improved volume performance, aided by the low base effect from 2023FY. On pricing, our channel checks indicate that the brewer raised prices by c. 23.0% in the period. Meanwhile, revenue increased by 16.2% on a quarter-on-quarter basis, reflecting the price increases implemented during the period.
Gross margin reversed its downward trend, expanding by 486bps y/y to 28.1% in Q2-24 (H1-24: -422bps y/y to 28.1%), driven by the strong revenue performance (+94.4% y/y). Meanwhile, cost of sales grew by 82.1% y/y, with most of the pressures witnessed stemming from the high inflationary environment. This was particularly evident in the 96.5% y/y rise in materials and overhead costs.
However, the brewer reported an increased operating loss of NGN39.91 billion in Q2-24, (Q2-23: NGN31.72 billion) following a (i) substantial 114.1% y/y increase in operating expenses, relating to advertising, promotion, and distribution activities and (ii) 11.4x y/y increase in FX loss to NGN82.63 billion (Q2-23: NGN7.97 billion).
Net finance costs also grew by 291.4% y/y to NGN21.91 billion in Q2-24 (Q2-23: NGN5.60 billion), primarily driven by a substantial rise in finance costs (+175.9% y/y). The higher finance cost was due to higher interest expenses on loans (+193.5% y/y) despite the recent conversion of debt to equity, as total equity increased by 292.0% YTD to NGN425.38 billion (2023FY: NGN115.41 billion).
Consequently, INTBREW posted a higher pre-tax loss of NGN61.81 billion (Q2-23: NGN37.32 billion). Following an income tax credit of NGN14.49 billion in the period, the loss after tax was NGN47.32 billion in Q2-24 (Q2-23: NGN21.29 billion).
Comment: As shown in the Q2-24 results, INTBREW’s performance continued to be impacted by currency depreciation and high operating expenses, which overshadowed the significant topline growth. Looking forward, we expect strong revenue growth driven by higher prices and increased volume. However, our short-term outlook remains cautious, as we anticipate that earnings will be pressured by ongoing high costs and the risk of further currency depreciation. Our estimates are under review.
