International Breweries Plc entered the fourth straight year of losses in the first quarter of the 2021 financial year with a net loss of N2.6 billion. The brewing company has continued to face operating pressures from top to bottom lines.
Over the past three years, the company built a total loss of over N44 billion, which has topped up further with the first-quarter loss. The losses have erased retained earnings, leaving a retained deficit of close to N18 billion at the end of the first quarter in March.
The company is nevertheless hopeful that a turnaround isn’t that far-fetched. Declining losses are counted as a signal of progress. Last year’s loss of N12.4 billion was a big slash from close to N28 billion loss in the prior financial year. The company cut the loss figure further in the first quarter by as much as 54 percent year-on-year.
Four major developments have enabled the company to cut its losses so far. One is a major reduction in balance sheet borrowings last year that has improved the cash flow position this year. Interest-bearing debts dropped by over 61 percent to about N111 billion in 2020.
The debt figure went up to about N113 billion at the end of the first quarter but the benefits of the reduction last year are still impacting the income statement by way of reduced finance charges.
Another factor in the declining loss records of the company is a tax credit – which was as huge as N12.5 billion at the end of last year. The company again recorded a tax credit of N982 million in the first quarter – which enabled it to reduce its pre-tax loss of N3.6 billion.
Again, sales revenue has continued to strengthen, giving the company a fundamental position of strength for an eventual turnaround. Turnover is picking up once again after a slowdown in 2020.
The fourth positive factor for International Breweries is a big cut in other expenses by as much as 97 percent to N168 million in the first quarter. The reduction accounted directly for a sharp drop in operating loss at the end of March 2021.
The company’s first-quarter report for the period ended March 2021 shows sales revenue of N39 billion, which is an increase of 10 percent compared to an increase of 3 percent at the end of last year. There has been an upturn in sales revenue performance since the second half of last year, which strengthened further in the first quarter.
The challenge this year however is that input cost is growing ahead of revenue. At over N32 billion, the cost of sales grew by 11 percent year-on-year and claimed much of the increase in sales revenue. Input cost claimed 83 percent of sales revenue, an increase from 77.7 percent at the end of last year.
Gross profit improved moderately at 5 percent in the first quarter, which is a slowdown from a 21 percent growth at the end of last year. Gross profit remains quite insufficient to meet administrative and marketing/promotion expenses of about N9 billion for the quarter.
With the sharp drop in other expenses, the company was able to cut down operating loss by 64 percent to N2.9 billion.
Finance expenses dropped by 30 percent to N684 million in the first quarter after a drop of 79 percent at the end of 2020. A disappointment however came from finance income, which dried up in the first quarter compared to N1.3 billion in the same period last year. The development led to a near doubling of net finance cost over the review period.
International Breweries closed the first quarter operations with a pre-tax loss of N3.6 billion, which is a drop of 54 percent year-on-year. An occurrence of an income tax credit of N983 million lowered the net loss to N2.6 at the end of the period. This is a reduction from a loss of N5.6 billion in the same period in 2020.
How far the company will keep losses down for the second year will be the key point to watch out for on International Breweries in subsequent interims. Hopes for an eventual turnaround rest on the possibility of at least achieving another major reduction in the company’s loss figure this year.
The company closed the first quarter operations with a loss per share of 10 kobo, down from 21 kobo loss per share in the same period last year.
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