Nigeria’s third largest brewer, International Brewery has faced several challenges in the last 5 years since it launched a major offensive for market share in Nigeria’s brewery sector.
The company has reported losses every year since 2018 accumulating a total loss of N36.6 billion as captured in the company’s balance sheet. The company is a proud part of the world’s largest brewer, Anheuser-Busch InBev, (ABInBev); the world’s largest brewer with over 400 beer brands and over 50 years in the brewing business.
Yet, it is struggling to get out of the challenges of incessant losses which we also captured in a Blurbarticle earlier in June.
The latest result from the company for the third quarter of 2022 reveals it also reported a loss of N3.1 billion wiping out all the profits recorded in the first two quarters of the year. Its loss this year is N2.8 billion much improved from the N14 billion losses recorded in the first 9 months of 2021.
Reason for the losses: The company’s challenges continue to arise from its inability to reign in high operating costs reducing its gross profit margins to just 21% or N10.3 billion. However, operating expenses on admin, and marketing expenses amounted to about N14 billion last quarter alone.
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According to the company “gross profit and margins declined on elevated costs largely due to higher energy prices, FX illiquidity, commodity costs headwinds, severe weather, and overall inflationary pressures. We remain EBITDA positive on the back of prudent resource allocation and cost management.”
The company is also struggling with high finance costs represented by borrowings of N115.3 billion including over N144.2 billion owed to trade suppliers. Despite this, the company continues to invest in capital expenditure. This year alone, it has spent N35.1 billion added to the N244.8 billion it has spent (net) on investment since 2018.
Doubling down on investments: The company’s massive investment is against the backdrop of competition in the sector that has been largely dominated by Nigeria Breweries.
At some point a few years ago, International Breweries overtook Guinness as the second-largest brewery before losing that position last year to the latter.
To compete. Intl. Breweries will have to invest massively but it also needs to desperately improve their bottom line. This will start with reigning down on its high operating cost and huge debt burden.
Actions being taken: Efforts are being made on both fronts already but more needs to be done in the coming year to not just reduce costs but boost revenues.
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Even its competitors are doing better with cost viz a viz revenues. Nigeria Breweries and Guinness reported 74% and 67% in operating expenses as a percentage of gross profit in their last full-year financial statement. However, International Breweries reported 139%, meaning its operating expenses were more than its gross profit hence the losses.
It is, however, struggling to boost revenues and manage costs as confirmed in its statement. “Following a strong first half of the year, our volumes declined in the third quarter of 2022 due to a soft industry and ongoing supply chain constraints. The last three months have been characterized by elevated inflationary pressure which has had an impact on consumer disposable income. The period experienced especially severe weather with a longer rainy season and floods in key markets.”
The company MD/CEO, Hugo Dias Rocha tried to explain some of the challenges they experienced this year. “Despite the difficult quarter, we remain focused our winning commercial strategy. Year-to-date, our brands remain resilient and continue to deliver Net Revenue growth. We remain committed to returning to profitability and creating value for our stakeholders consist of.”
That commitment needs to materialize soon if he is to maintain the confidence of shareholders.