Nigeria’s third largest brewery, International Brewery, has faced several challenges in the past 5 years since it launched a major market share push in Nigeria’s brewing sector.
The company has reported losses every year since 2018, accumulating a total loss of N36.6 billion, as reflected on 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.
However, he is struggling to get out of the challenges of incessant losses that we also captured in a Propaganda article in early June.
The company’s latest result for the third quarter of 2022 reveals that it also reported a loss of N3.1 billion that wiped out all profits posted in the first two quarters of the year. Its loss this year is N2.8 billion much better than the N14 billion losses recorded in the first 9 months of 2021.
Reason for losses: The company’s challenges continue to stem from its inability to control high operating costs, which reduces its gross profit margins to just 21% or N10.3 billion. However, operating expenses on administration and marketing amounted to around N14 billion in the last quarter alone.
- According to the company gramProfits and gross margins declined due to elevated costs, largely due to higher energy prices, illiquidity in FX, commodity costs, severe weather and general inflationary pressures. We maintain a positive EBITDA thanks to the prudent allocation of resources and cost management”.
- The company is also struggling with high financial costs represented by loans of N115.3 billion, including more than N144.2 billion owed to commercial suppliers. Despite this, the company continues to invest in capital expenditures. This year alone, it has spent N35.1 billion added to the N244.8 billion it has spent (net) on investment since 2018.
Double the investments: The company’s massive investment comes against the backdrop of competition in the sector, which 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. international Breweries will have to invest massively, but they also desperately need to improve their results. This will start with reining in its high operating cost and huge debt load.
Actions being taken: Efforts are already underway on both fronts, but more needs to be done in the coming year to not only reduce costs but also increase revenue.
- Even your competitors are doing better on cost, that is, on revenue. Nigeria Breweries and Guinness reported 74% and 67% operating expenses as a percentage of gross profit in their latest full-year financial statements. However, International Breweries reported 139%, meaning its operating expenses were greater than its gross profit, hence the losses.
- However, it is struggling to grow revenue and manage costs, as confirmed in its release. “After a strong first half of the year, our volumes declined in the third quarter of 2022 due to a weak industry and continued supply chain constraints. The last three months have been characterized by high inflationary pressure that has had an impact on the disposable income of consumers. The period saw particularly severe weather with a longer rainy season and flooding in key markets.
- The company’s MD/CEO, Hugo Dias Rocha, tried to explain some of the challenges they experienced this year. “Despite the difficult quarter, we remain focused on our winning business 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 in the future.”
That commitment must materialize soon if it is to maintain shareholder confidence.
… International Breweries N38 billion in cumulative losses is a red flag Read more at … Naijaonpoint.