International Breweries Cuts Loss In Q3 On Debt Reduction

International Breweries Plc slashed its loss in the third quarter from close to N10 billion to N1.5 billion on quarter-on-quarter reading at the end of September 2020. This is a sustaining reward of a 60 per cent cut in balance sheet debts early in the year.

The direct effect of the debt reduction is that finance expenses fell by over 85 per cent quarter-on-quarter to N895 million at the end of the third quarter. That reduced pre-tax loss by 58 per cent to N5.7 billion for the quarter. This was further boosted by a 7 per cent increase in tax credit to N4.2 billion over the same period, wiping off much of the pre-tax loss.

Apart from the impact of debt reduction on revenue, the company also experienced some strengthening of the fundamentals in the third quarter. Sales revenue grew by 23 per cent quarter-on-quarter to N35 billion at the end of September 2020, which is a strong positive signal for the company going forward.

Other positive signals include a slower growth of cost of sales at 19 per cent to N29 billion over the same period, an increase of 47 per cent in gross profit to roughly N6 billion and a drop of 42 per cent in marketing and promotion expenses to N3 billion. A drop of 35 per cent in operating loss to N4.8 billion quarter-on-quarter topped up the positive signals the company generated in the third quarter.

The brewing company’s nine-month position to September 2020 shows that cash outflow for finance expenses dropped from over N12 billion to N3 billion year-on-year. The company’s cost-income structure still failed to deliver profit at the end of the third quarter but the improvements within the quarter improved the year-on-year numbers considerably.

The company’s third-quarter interim report shows sales revenue of N95.8 billion, which is a marginal decline of 1.5 per cent year-on-year. This is a significant improvement from a drop of 12 per cent in turnover at half-year.

Input cost grew by 4 per cent to over N80 billion against the marginal decline in sales revenue. It claimed 84 per cent of sales revenue at the end of the third quarter, increasing from 79 per cent in the same period in 2019.

That caused a 23 per cent drop in gross profit to N15.5 billion – which narrowed down the drop of 35 per cent in gross profit at half-year. Yet, gross profit was insufficient to meet administrative cost and funding for marketing and promotion expenses had to be borrowed.

Other operating losses grew further in the third quarter to N5.4 billion against other operating income of N226 million in the same period in 2019. Some cost savings were made from administrative cost, which went down by close to 10 per cent to N17.6 billion and marketing and promotion expenses dropped by 29 per cent to N8.4 billion year-on-year.

The company still closed the period with an operating loss of close to N16 billion, which is an increase of 45 per cent over the period. This is nevertheless a major improvement from three times multiplication of operating loss at half-year.

A further build-up of revenue and reduction of the loss position is expected for International Breweries in the final quarter. Yet the company is likely to close the year with another operating loss after posting an operating loss of N21 billion at the end of 2019.

The company is also likely to post a net loss for the third straight year after closing the 2019 operations with a loss of close to N28 billion. The difference expected for 2020 is the reduction in net finance cost from more than N13 billion to N1.8 billion over the review period.

Further to that is the occurrence of another income tax credit to the tune of N6.8 billion at the end of the third quarter. It dressed down the pre-tax loss of N17.7 billion to net loss of N10.9 billion at the end of the third quarter.

Net finance expenses dropped by 76 per cent at the end of the third quarter, which made a positive impact on the company’s income statement. The drop in the cost of funds is the reward of the company’s debt reduction that happened early in the year. The development has taken off pressure from finance expenses on revenue.

The improvements in the company’s operations in the third quarter changed its direction from increasing to declining loss figure. Compared to an increase of roughly 37 per cent in net loss at half-year, the net loss dropped by 34 per cent to N10.9 billion at the end of September 2020.

The brewing company lost 40 kobo per share at the end of the third quarter, up from N1.91 loss per share in the same period in 2019. The full-year expectation is that the net loss figure will decline further in the final quarter.