BY Mike 'Uzor
Losses multiplied for International Breweries Plc at half year from N3.7 billion it recorded in the first quarter to almost N14 billion. The company incurred a loss of over N11 billion in the second quarter, three times the N3.7 billion loss it recorded in the corresponding quarter in 2020.
A foreign exchange loss of N7.8 billion accounted for much of the loss that occurred in the second quarter. The half year loss figure is already above the full year loss of N12 billion in 2020. The company has seen a stream of losses since 2018 with huge debt financing puncturing the bottom line.
The company reduced its debt profile last year and with that, it has cut down finance expenses considerably. That registered a positive impact on the income statement in the first quarter when there was a drop of as much as 54 percent in the loss figure.
However a build-up of foreign exchange losses in the second quarter has sustained operating pressures giving rise to the company’s cost-income imbalance. This has reversed the company’s fortunes from a dropping loss in the first quarter to a soaring loss figure in the second quarter.
The losses are hitting the company’s capital account and eroding shareholders’ funds. Over the first six months of the year, the company’s equity capital dropped by N8 billion due to impairment by losses. Over the six months of trading this year, retained deficit has nearly doubled to over N29 billion at the end of June 2021.
The company’s management is nevertheless steering forward with some positive developments that hold some flickers of hopes and optimism. There is a much-deleveraged balance sheet that has taken a lot of cost pressure off the company’s earnings and has improved cash flow position.
A major gain in operating strength is also coming from rapidly growing sales revenue so far this year. Turnover accelerated from 10 percent growth in the first quarter to 70 percent quarter-on-quarter in the second quarter. This represents the strongest revenue growth for the company in three years.
Another favourable development is in respect of tax credit, which multiplied four times quarter-on-quarter in the second quarter. That has lifted up tax credit from N982 million in the first quarter to the half year position to N3.3 billion at the end of half year operations.
One adverse development that more than countered all the positive changes in the second quarter is the occurrence of other expense of over N11 billion in the second quarter – which is driven by foreign exchange loss. This is a bad turn from the first quarter when the company recorded a drop of as much as 97 percent in other expenses.
This is against other income of almost N2 billion recorded in the same quarter in 2020. The development consumed all the cost savings and revenue gains and created a pre-tax loss of N13.6 billion in the second quarter.
The company’s year-to-date position shows a turnover of about N82 billion, which is a year-on-year growth of 35 percent at the end of June 2021. It is a major gain in momentum from an increase of 10 percent in sales at the end of the first quarter.
This marks a major upturn in sales revenue from a marginal improvement of 3 percent in 2020. The brewing company looks quite good to achieving the strongest revenue improvement in three years in 2021.
The improvement in sales revenue is supported by moderated increase in cost of sales – which grew below sales revenue at 30 percent to N66.5 billion compared to the 35 percent. This powered a top record growth of 62 percent in gross profit to over N15 billion.
Despite some reduction in the proportion of revenue claimed by cost of sales, the ratio remained quite high at 81 percent at half year.
Despite the high growth, gross profit could not meet administrative and marketing/promotion expenses of over N20 billion at half year. Operating loss rose by 49 percent year-on-year to over N16 billion at half year fuelled by exchange loss.
Finance expenses continued to drop from 30 percent in the first quarter to 58 percent at the end of half year operations. Net finance cost went down by 14 percent to N816 million at the end of the review period.
International Breweries incurred a pre-tax loss of over N17 billion at half year, which is an increase of 44 percent year-on-year over is loss figure of N12 billion in the same period last year. It applied an income tax credit of N3.3 billion to reduce the net loss to a little below N14 billion at the end of the half year period. This is an increase of 48 percent in the loss figure over the same period in 2020.
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