International Breweries Nigeria Plc earnings have been swallowed by huge total cost of operations as losses have continued to pile, raising concerns about the brewer’s ability to pay dividend to shareholders.
The company had been raising alarm bells that hefty taxes like the hike in excise duties on alcohol beverage drinks by the government, surging inflation and foreign exchange illiquidity will send its margin nose diving.
The 2020 audited financial statement of the company shows total cost of production (Cost of sale plus operating expenses) stood at N146.88 billion as at December 2020, which is 1.07 times total revenue of N136.79 billion, resulting in a loss of N12.36 billion, according to MoneyCentral Calculations.
Revenue was down 3.35 percent to N136.79 billion as at December 2020, the slowest growth in 3 years, based on Data gathered by MoneyCentral.
To exacerbate the already anemic position of International Breweries is foreign exchange revaluation loss of N14.35 billion, which represents a 734.30 percent surge from 2019’s N1.72 billion.
There are indications foreign exchange loss might spike on the back of the adoption of flexible exchange rate by the central, a defacto devaluation as the apex banks had weakened the currency twice so as to woo investors who were complaining about foreign exchange scarcity.
The Nafex, as the flexible rate is known, has averaged 410 naira to the dollar since the beginning of the year, N8 weaker than the CBN’s old fixed rate of 379 naira.
However, there has been a reduction in the brewer’s debt and interest expense, thanks to a rights issue, but the strategy is not enough to salvage the brewer from huge losses that it incurred.
Interest expense was down 79.11 percent to N3.17 billion in the period under review to N15.18 billion the previous year while total loans and borrowings in the balance sheet dipped by 58.16 percent to N110.66 billion as at December 2020.
Analysts have warned that it could be practically difficult for International Breweries and peer rivals to hike price of products above inflation rate amid rising inflation and beleaguered consumers struggling with unemployment rate and utility bills.
Nigeria’s annual inflation stood at 16.47 percent in January, compared with 15.75 percent in December, according to recent data by the National Bureau of Statistics (NBS).
The jobless rate in Nigeria rose to 33.3 percent in the three months through December, according to the statistics body. That’s up from 27.1 percent in the second quarter of 2020, the last period for which the agency released labor-force statistics.
If inflation continues to rise and the economy grows at a snail pace, brewers are going to be the hardest hit because their products are highly elastic as consumers can downgrade to cheaper and more affordable brands.