International Breweries maintaining stable earnings growth

International Breweries is maintaining earnings growth and improving market share in a highly competitive breweries market. The company consolidated on its revenue performance in its 2013/14 financial year ended March after three years of sustained rapid growth. It is stepping up towards accelerated growth in revenue and profit in the current financial year.

Michael Daramola, the company’s managing director/chief executive officer, has succeeded in positioning his company on a platform to compete favourably with the giants in the brewing business. He is employing innovative growth strategies to push sales volume and revenue in the face of a continuing slow growth in the brewed products market. With enhanced operating efficiency, he has also improved profit margin, which could lead to a new profit high in the 2014/15 financial year.

The company grew sales revenue by 16.7% to N10.07 billion year-on-year at the end of its second quarter operations in September. This is one of the strongest revenue improvements seen in the breweries sector so far this year. The company also led sales revenue growth in the industry in the preceding year.

International Breweries has achieved a rapid growth in sales revenue in the past five years from about N930 million in 2009 to N18.49 billion in March 2014. This indicates a sustained gain in market share over the period and the ability to defend the market share so far. Sales revenue is expected to accelerate in the current year to a projected height of N21.2 billion. This will be an increase of 14.6%, accelerating from 6.3% in the preceding year. Neither of the two brewing majors is likely to come close to that level of growth this year.

Profit is growing well ahead of sales revenue, as the company is rebuilding profit margin after a decline last year. It grew after tax profit by close to 25% to N1.36 billion year-on-year in the second quarter. The full year outlook indicates an after tax profit in the region of N2.9 billion for International Breweries in the 2014/15 financial year. That will be an increase of 38% over the N2.1 billion net profit the company posted in the preceding year.

The company recorded a decline of about 10% in after tax profit in the 2014 financial year. A new peak in profit is therefore expected in the current year. The company has maintained profitable operations since it returned to profit in 2010. The accelerated growth expected this year follows a recovery in profit margin from 11.4% at the end of last year to 13.5% at the end of the second quarter. This is well ahead of Guinness’s profit margin of 7% but slightly below Nigerian Breweries’ figure of 15.3% – all interim figures as at the end of September.

The company saved costs in two major expenditure areas to achieve the improvement in profit margin – cost of sales and finance cost. Cost of sales grew less rapidly that sales revenue during the review period at 15.4%. That enabled gross profit to grow ahead of sales revenue at 18.1% to N5.04 billion during the period. Gross profit margin continues to improve from 44.3% in 2013 to 48.1% in 2014 and further to 50% at the end of the second quarter.

Finance cost is the second area of cost saving, which dropped by about 43% in the second quarter. This apparently reflects a continuing cut down in short-term borrowings, which dropped by 68.1% last year and further by 53.6% in the second quarter. Long-term debts however grew by 43% over the closing figures for last year. Marketing/administrative cost is the only major expenditure that grew ahead of turnover at 33.7% and claimed an increased share of revenue during the period.

The company earned 41 kobo per share at the end of the second quarter, increasing from 33 kobo in the preceding year. Net assets per share has improved from N3.13 to N3.52 in 2014. Earnings per share is projected at 88 kobo for International Breweries at the end of the financial year. That will be an increase from 64 kobo in 2014 against a decline from 71 kobo earned in 2013.