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The impressive surge in the revenue of International Breweries has failed to reflect in its bottom line growth, as the beer maker’s rising expenses made sure of that.
International Breweries made a loss of N3.98bn in the first quarter of 2019, further widening the brewer’s loss from the previous year when it posted -N3.8bn in full-year 2018.
The first quarter loss came despite strong revenue growth by 35.1percent in the quarter to N35bn against N26.0bn in Q1 2018.
The firm’s loss is traceable to a 43percent increase in its cost of sales to N22.6bn in Q1 2019 from 15.8bn, a spike in operating expenses which put pressure on margins as marketing and promotion expenses ballooned 63.9percent to N7.7bn in Q1 2019 from N4.7bn in Q1 2018.
Meanwhile, administrative expenses during the period climbed 11.2percent to N3.3bn from N3.0bn in Q1 2018.
International Breweries also reported a net foreign exchange loss of N364 million, a 429 percent increase from the previous year.
The brewer’s revenue surge evidences the company’s success in undercutting competitors’ market share with Nigerian Breweries recording flat revenue growth of 0.4 percent in the same period while Guinness saw revenue tank 17.3 percent.
However, the company’s debt book continues to pressure earnings with the finance cost soaring 41.1percent to N5.1bn in Q1 2019 from N3.6bn in Q1 2018.
Its Q1 2019 performance shows no sign of the brewer deleveraging its balance sheet as no borrowings were repaid during the period while the company took on more debt; it took additional debt of N8.7bn as revealed in the cash flow statement.
The brewer’s aggressive brand promotion which has seen it incur more marketing cost may continue to drag performance in the short to medium term. The company’s recent campaigns evidence the company’s plan at aggressively promoting its brands particularly the Budweiser Premium beer as it attempts to fight for market share in the Premium beer market.
International Breweries recently completed the construction of a new brewery in Sagamu, Ogun State in 2018 at an initial cost of US$250m.
The global CEO of AB InBev, its parent company, while commenting at a recent media briefing in South Africa said that its capacity expansion in the new Sagamu brewery, which is being expanded in phases, is likely to raise the cost to US$400m, noting that Nigeria is becoming a more and more important market.
“I mean we’re growing double digits, we didn’t grow in the past as fast because we were lacking capacity and now that we have the capacity, strong brands, and a great group of people we are challenging the status quo there,” Brito said.
International Breweries Plc shares drop 7percent in two days since the announcement of the result. While its one year return was down by 59.74percent.
International Breweries beer brands include Budweiser, Hero Lager, Trophy lager, Beta malt, among others.