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Investors sell-off on International Breweries after Q4 slip

...unaudited result suggests FY loss worsened 562%

International Breweries suffered significant sell- off on its shares after a slip in the fourth- quarter result suggested a seeming long-game focusing on increasing market share ahead of bottom- line growth worry investors.

Shares of the beer maker fell 8.82 percent to N7.75 a unit on as trading opened for the week, the heaviest loss since early November last year.

International Breweries on Monday announced its sales in the last quarter slowed by 5.83 percent to N35.09bn while it made a loss of N9.14bn compared to a profit of N3.27bn in the corresponding period of 2018.

Businessday computation, based on the unaudited result which was reposted by the Nigerian Stock Exchange (NSE) on Wednesday, shows 2019 full-year loss could widen by more than 500 percent when audited results are published.

International Breweries had in its 9-month result posted a loss after tax of N16.44bn. Combined with a fourth- quarter loss of N9.14bn, 2019 loss stands at N25.58bn that is, 562 times more than N3.87bn loss in 2018.

The decline in profit masks a 10 percent increase in profit of Interbrew last year.

Its fourth-quarter sales of N35.09bn combined with a previously announced N97.26bn for the first nine months of the year brings year’s revenue to N132.35bn compared to N120.61bn in 2018.

Amidst an on- going beer war and increasing cost in the tariff-burdened beer sector, Interbrew has employed debt to finance growth and strengthened advertising campaign to lure more price-sensitive local beer consumers.

The beer marker’s focus on growing its market share saw Interbrew reverse a hike to its premium brand dubbed “King of beer” after rival beer manufacturers did not follow suit.

“Interbrew has always said its priority right, for now, is gaining market share, they are more longterm,” Fola Abimbola, equity analyst at Lagos-based Fbnquest told BusinessDay last year.

The gambit seems to be paying off as Interbrew cut into competitors’ market share in the first half of 2019.

While INTBREW grew sales by 29.2 percent yearon-year to N68.6bn, Nigerian Breweries and Guinness saw a slight fall in their revenue.

“The positive top-line performance was buoyed by the management’s aggressive drive to grow volumes, leveraging on its larger capacities,” said analysts at Lagos-based United Capital in a sector report.

But growth for Interbrew comes at a cost as heavy debt on its balance sheet and repayment cost is telling on bottom-line numbers.

Interbrew’s unaudited result shows an 84.07 percent year-on-year increase in current borrowings (bank overdrafts and term loans) to N116.77bn in 2019.

For the fourth quarter, gross profit fell about 23 percent on an annual basis to N11.88bn after the cost of sales rose 5.98 percent year-on-year.

This meant that Interbrew made N33.84 from every N1oo sales in the quarter, compared to N41.22 per hundred naira sales from a year ago.

A rise in operating expenses and decline in other income meant Interbrew recorded an operating loss of N4.12bn in the quarter after it had recorded N8bn operating profit in the corresponding period of 2018.

There was no finance income but finance cost rose 31.69 percent to N9.24bn which resulted in a loss before tax of N13.36bn versus a profit before tax of N1.14bn in the same period of 2018.

This also drove the beer maker’s earnings per share into negative territories.

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