International Breweries defied the operating pressure facing the brewing industry for the past three to four years running and raised profit to a new high after a two-year fall. The company’s strength came from a sustaining growth in sales revenue – the only major brewing company that has maintained a consistent growth in revenue in recent years.
The brewing industry has moved from stagnation to a decline in recent years, which is hurting sales volume and margins for the operators. Even consumer facing industries are losing sales due to consumer spending constraints. Rising consumer prices, induced by exchange rate depreciation, has added to the operating strain in the brewing business.
International Breweries seems to be on the fair side of the competition, as its defiant growth in sales revenue indicates increasing market share. The company also shows favourable cost behaviour that enabled it to cut down on cost of sales and raise profit margins. This is against the general industry trend where companies are incurring increased costs to generate a naira of sales revenue.
The 2015/16 financial year ended quite well for the company with revenue growth stepping up and maintaining stable growth for the past five years running. Turnover amounted to N23.27 billion for International Breweries at the end of its 2016 financial year in March – an increase of 12.7% and the strongest growth in three years. This is slightly ahead of the growth of 11.7% the company recorded in the preceding year.
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The strength in sales revenue growth in the year was further reinforced by moderation of cost of sales. The cost of the naira of goods sold during the period declined from 56.1 kobo in 2015 to less than 54 kobo in 2016. That raised gross profit well ahead of sales revenue at 18.2% to N10.71 billion at the end of the financial year.
Marketing and administrative expenses however stood on the way of converting the revenue saved into profit as they grew well ahead of sales revenue at 25.8% and 14.7% respectively. A big leap in finance income and a decline in finance expenses countered much of the increases in the two cost lines and boosted profit capacity.
A 6.2% decline in interest expenses to N1.71 billion followed a reduction in balance sheet borrowings during the year. The company closed the year with an after tax profit of N2.65 billion, an increase of 36.3% over the preceding year’s figure. This is a new peak in profit for the company after losing profit for the preceding two years.
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The sustained growth in sales revenue and improvement in profit margin accounted for the company’s improved profit capacity in 2016. Profit margin improved from 9.4% in 2015 to 11.4% in 2016 – the highest in three years.
The company earned 81 kobo per share at the end of the 2016 financial year, improving from 59 kobo in the preceding year. Directors have recommended a cash dividend of 35 kobo per share, improving from 32 kobo in the preceding year. The company’s register will close on 15th July while payment date is 11th August, 2016.
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