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International Breweries Plc (INTBREW) published its Q2-22 unaudited financials on Friday (July 29), reporting a lower Loss per Share of NGN0.01 in Q2-22 (vs Loss per Share of NGN0.42 in Q2-21). However, the H1-22 EPS printed NGN0.01 (vs Loss per Share of NGN0.52 in H1-21), on the back of solid revenue growth (+35.9% y/y), amid higher OPEX (+20.2% y/y) and surging net finance costs (+338.9% y/y).
Revenue grew by 25.3% y/y (H1-22: +35.9% y/y) in Q2-22, at a slower pace than NB’s topline growth (+31.6% y/y). In our view, the positive outturn in revenue was underpinned by resilient consumer demand and single-digit price increases implemented across product categories to cover the (1) excise duty hikes on non-alcoholic beverages (NGN10.00/l) and alcoholic beverages (beer & stout: NGN40.00/cl) in the period, and (2) rising costs of raw materials. Sequentially, top-line growth was much slower, as revenue declined by 6.3% q/q.
INTBREW’s gross profit margin expanded (+101bps y/y) to 30.9% (Q2-21: 20.8%), buoyed by the faster increase in sales (+25.3% y/y) vis-a-vis COGS (+9.3% y/y) in the period.
Consequently, EBITDA and EBIT margins printed 18.6% (Q2-21: -10.9%) and 3.2% (Q2-21: -31.5%), respectively, in Q2-22, majorly driven by other income (NGN1.71 billion vs loss of NGN11.18 billion in Q2-21). The other income breakdown attributes the bulk of the gain to a net foreign exchange unrealised gain of NGN1.60 billion (vs net foreign exchange realised loss of NGN11.25 billion in Q2-21). Elsewhere, OPEX increased by 47.5% y/y, following increased promotional activities (+107.0% y/y) in the period.
Elsewhere, net finance cost surged (+1218.0% y/y), as higher finance costs (+803.1% y/y) offset the upsurge in finance income (+403.8% y/y) in Q2-22. We highlight that higher interest expense on its lease (+743.6% y/y) and financial liabilities (+830.9% y/y) influenced the higher finance costs. On the latter, we suspect that the company recorded some FX losses due to exposure from its foreign currency-denominated payables.
Consequently, the company’s pre-tax loss declined by 99.8% y/y to NGN32.07 million in Q2-22. Following a tax charge of NGN352.90 million, the company recorded a loss after tax of NGN384.97 million in Q2-22 (vs loss after tax of NGN11.31 billion in Q1-21).
Comment: INTBREW’s revenue growth was strong in the period, however, we remain concerned about the brewer’s exposure to FX through its huge USD-denominated debt, which poses a significant risk to earnings in the short-medium term. Notwithstanding, we expect the topline and margins to remain relatively strong on better cost-reflective prices. The stock is up 8.1% YTD. Our estimates are under review.