International Breweries cuts loss in Q1, hopeful for turnaround

International Breweries Plc is cutting its running losses heavily for the second year, which is giving good indications for an eventual return to profit this year. The company closed the first quarter operations in March 2021 with a net loss of N2.6 billion, which is a year-on-year reduction of as much as 54 percent.  

The company also cut its loss by 56 percent last year to close with a net loss of N12.4 billion. The high margin at which it is cutting its losses raises hopes that a quick return to profit might happen in the course of the 2021 financial year.

The company’s bottom line has consistently been deep in the red since 2018, which has extended to the fourth year with the loss position in the first quarter of the current year. The brewing company has continued to face operating pressures all the way from top to bottom lines.

Three years of losses have summed up to more than N44 billion, which has impacted the equity funds negatively. By the end of the first quarter in March, the losses had consumed the company’s retained earnings and built retained deficit of roughly N18 billion.

There is some easing in the company’s challenges that have enabled the loss reduction achieved in the first quarter. These include a major reduction in finance expenses following a big step taken to deleverage the balance sheet.

The company’s management cut balance sheet borrowings last year by as much as 61 percent to close at about N111 billion for the year. The benefits of the reduction are impacting the income statement by way of reduced finance charges this year. Finance expenses have dropped, which has improved cash flow.

Also, management is making some headway in improving sales revenue after a slowdown in 2020. Turnover is picking up and this is giving the company a fundamental strength for a possible turnaround.

Another favourable development for the company is tax credit – which was as huge as N12.5 billion in the 2020 financial year. The positive record is continuing this year with a tax credit of N982 million in the first quarter. This enabled the company to reduce its pre-tax loss of N3.6 billion in the first quarter.

The company’s ability to reduce cost was also supported by a huge cut of 97 percent in other expenses to N168 million in the first quarter. The reduction led to a sharp drop in operating loss at the end of March 2021.

International Breweries generated sales revenue of N39 billion for the first quarter ended March 2021. This is a year-on-year growth of 10 percent, stepping up from 3 percent improvement at the end of last year. There has been a gain in momentum in sales revenue performance since the second half of last year, which has helped the company to cut its losses.

One major challenge remains however, which is that input cost is growing ahead of revenue and eroding margins. Cost of sales amounted to over N32 billion in the first quarter, which is a year-on-year growth of 11 percent. The company devoted 83 percent of sales revenue to meet input cost, an increase from 77.7 percent at the end of the preceding year.

Gross profit improved by 5 percent in the first quarter to N6.5 billion, which is a sharp deceleration from a 21 percent leap at the end of last year. Gross profit was quite insufficient to meet administrative and marketing/promotion expenses of about N9 billion for the period.

The company’s operating result was a loss of N2.9 billion, which was a major reduction however. The sharp drop in other expenses enabled the company to cut down operating loss by 64 percent.

Finance expenses are going down for the second year at 30 percent to close at N684 million in the first quarter. This is further to a drop of 79 percent at the end of 2020.

This was however countered by a disappearance of finance income, which was as much as N1.3 billion in the same period last year. The result was that net finance cost nearly doubled at N684 million over the review period.

The first quarter operations ended with a pre-tax loss of N3.6 billion for International Breweries, which is a drop of 54 percent from a pre-tax loss of N7.7 billion in the same period last year. An income tax credit of N983 million lowered the net loss to N2.6 billion, down from a loss of N5.6 billion in the same period in 2020.