International Breweries Plc have had rising finance costs and spiralling operating expenses weigh on profitability as the devaluation of the naira makes it difficult for the company to take advantage of price fall in raw materials.
For the six months ended 30th September 2015, International Breweries Plc net income dropped by 48.18 percent to N704.81 million as against N1.36 billion the previous year.
Sales increased by 0.7 percent to N10.14 billion as the company like other brewers struggle with weak consumer spending stoked by slow economic growth.
Analysis of the financial statement of International Breweries Plc shows the drop in profit was caused by an increase in Operating expenses by 16.66 percent to N3.28 billion in 2015 as against N2.81 billion last year.
Also, bottom line also took a hit from a 156 percent jump in finance costs to N790.81 million in the period under review from N308.91 million in 2014.
“International Breweries’ Q2 results were weighed down mainly by gross margin contractions and elevated finance costs,’’ said Jumoke Okeowo, equity research analyst with FBN Capital in an emailed note to BusinessDay.
‘’Given the challenges in sourcing FX, we do not see gross margins showing any meaningful improvement in the near term unless raw material prices decline enough to offset fx losses. The company’s cost of debt increased by 800bps last quarter,” said Okeowo.
International Breweries Plc gross margins contracted to 50.09 percent in 2015 as against 51.98 percent last year. Gross profit fell by 4.57 percent to N5.08 billion.
Recent numbers released by brewers such as Nigeria Breweries and Guinness showed top lines were dampened by economic doldrums caused by rising inflation that eroded discretionary income.
Nigeria inflation advanced to 9.4 percent in November after a brief respite in the previous month.
Economic growth rate slowed to 2.4 percent Q2 of 2015, with a marginal increase to 2.84 percent in Q3 of 2015 compared to nearly 4.0 percent in the first quarter of 2015, and 6.2 percent in the fourth quarter of 2014, according to the bureau of statistics data.
International Breweries Plc total assets increased by 14.45 percent to N31.76 billion in 2015 compared with N27.75 billion in 2014. The drop in profit impacted on Return on equity (ROE) which moved to 5.47 percent in the period under review as against 11.74 percent last year.
The company’s share price closed at N16 on the floor of the exchange while market capitalization was N52.70 billion.
“As such, we expect finance costs to remain elevated. Consequently, we have modeled a -6.4% y/y decline in PAT in 2016E,’’ said Okeowo.
BALA AUGIE
