International Breweries Plc cut down its loss figure in 2020 from close to N28 billion in 2019 to N12.4 billion. This is in line with our full-year outlook for the brewing company in our review of its third-quarter operations. We had expected that “the company is also likely to post a net loss for the third straight year…”
Two major developments on the side of costs enabled the company to slash the loss figure that much in the year. One is a 61.5 per cent cut in balance sheet debts to roughly N111 billion – which relieved the company of a lot of finance expenses burden.
The second positive development for the company in the year is a huge tax credit of N12.5 billion, which directly erased one-half of the company’s pre-tax loss of nearly N25 billion.
The direct effect of the debt reduction is that finance expenses dropped by 79 per cent to N3.2 billion at the end of the year. A robust increase in finance income to N1.5 billion in the year lowered net finance cost by 89 percent to N1.7 billion during the year.
The strengthening of the company’s fundamentals seen in the third quarter extended to the final quarter. Sales revenue stepped up further and input cost went down slightly. Other positive developments in the year include strong growth in gross profit, a drop in marketing and promotion expenses and a shift from other loss to other income.
The brewing company’s audited full-year report to December 2020 shows sales revenue of N136.8 billion, which is a step up from a marginal decline of 1.5 percent at the end of the third quarter to an increase of 3.3 percent. There was an upturn in sales revenue performance in the second half – which overturned a drop of 12 percent in turnover at half-year.
Input cost also changed direction from an increase of 4 percent at the end of the third quarter to a slight decline to N106 billion at full year. It claimed a reduced share of sales revenue at 77.7 percent, down from 81 percent in 2019.
The gain in sales and the downward step in cost of sales caused a change of direction also in gross profit. From a drop of 23 per cent at the end of the third quarter, gross profit grew by about 21 per cent to N30.5 billion at the end of the year.
Yet, gross profit remained quite insufficient to meet operating costs and a major part of marketing and promotion expenses had to be sourced from outside sales revenue.
A major challenge came from other operating losses, which grew massively from N1.7 billion to N14.4 billion over the review period. Some cost savings were made from marketing and promotion expenses, which dropped by 21 percent to N12.6 billion and net impairment charge on financial assets, which declined by 13.3 percent to N1.4 billion. Administrative cost, on the other hand, grew by 6.7 percent to N27.9 billion.
The company closed the year with an operating loss of over N23 billion, which is an increase of 10.5 percent for the year. This represents a major improvement in the second half from three times multiplication of operating loss at half-year.
The big difference was made by the drop in finance expenses and a major upturn in finance income in the year. The resulting sharp drop in net finance cost 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 took the pressure of finance expenses off from the company’s revenue. It changed the company’s position from an increase in operating loss to a drop in pre-tax loss at the end of the year.
International Breweries closed the 2020 financial year with a pre-tax loss of N24.9 billion, which is a drop of 31.2 percent from a pre-tax loss of over N36 billion at the end of 2019.
Further to that is the occurrence of another income tax credit to the tune of N12.5 billion at the end of the year. This dressed down the company’s pre-tax loss to a net loss of N12.4 billion at the end of the 2020 financial year.
This is a net loss for the company for the third straight year after closing the 2019 operations with a loss of about N28 billion. The company’s loss per share reduced from N1.16 at the end of 2019 to 47 kobo per share at the end of 2020.
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