International Breweries Nigeria Plc is piling up losses despite a reduction in debt as the Covid-19 crisis compounded the woes of a beer maker already reeling from spiraling cost and stiff competition.
The local unit of AB InBev, declared a loss of N10.87 billion in the first nine months of the year from a loss of N16.44 billion as at September 2019.
As a result of recurring losses, it has negative retained earnings of N13.50 billion in the balance sheet, which could hinder the company from paying dividends to shareholders.
Revenue reduced by 1.53 percent to N95.76 billion in the period under review, thanks to weak beer volume as a lockdown imposed by the government to curb the spread of the virus prevented customers from going to the pub or bar to have a drink.
The environment has been challenging for producers of discretionary and non-discretionary products. Last year, government imposed taxes on beer and spirits, and companies are not able to pass on the full burden to consumers.
International Breweries’ cost of sales ratio increased to 83.82 percent in September 2020 from 79.13 percent the previous. This means the company is spending more on input cost to produce each unit of product.
Analysts attribute increased cost of production to the Naira devaluation during the period. They added that the spike was also partly due to higher prices of raw materials as global demand for agriculture commodities recovered.
Based on Bloomberg estimates, the prices of raw materials such as barley and corn are up by 26.2 percent YTD and 6.8 percent YTD respectively, indicating cost pressures for International Breweries.
Nigeria is likely to enter recession in the third quarter after its economy contracted 6.1 percent in the second quarter. The government expects the economy to shrink as much as 8.9 percent this year.
The deleveraging strategy of International Breweries has paid off as finance cost reduced by 75.84 percent to N13.13 billion in September 2020 from N3.17 billion the previous year.
Total Debt fell by 59.29 percent to N263.63 billion in the period under review from N107.32 billion the previous year.
There may be light at the end of the tunnel for the beer maker as demand is expected to pick up during the festive period and the gradual reopening of the economy could spur consumer confidence.