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  • Intl. Breweries: Drunk by debt, wobbling out of losses

    Posted on May 23, 2022

    International Breweries Plc (IBPLC) 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, over the last four years the Nigerian entity, International Breweries has struggled to grow its bottom line. A four-year, periodic analysis between 2018 and 2021 showed a steady growth trajectory with consistent year-on-year growth in revenue. One of the major factors contributing to the losses is operational costs caused by exchange rate fluctuations, devaluation, high financial leverage, COVID-19 disruption in 2020, etc. The losses and net profit margins wiped out its retained earnings, leading to an accumulated loss of N35.958 billion in 1Q 2022; though a marginal drop of 1.97 per cent from 2021FY accumulated loss of N36.679 billion due to the profit recorded in 1Q 2022.

    For instance, in 2019, cost of sales rose by 26.81 per cent to N107.144 billion from N84.494 billion in 2018. In 2021, it rose by 28 per cent to N135.99 billion from N106.32 billion in 2020, driven by N108.28 billion in materials consumed and allocated to overheads reported in 2021 from N79.9 billion in 2020. Operating expenses rose by 32 per cent to N53.6 billion in 2021 from N40.57 billion in 2020, attributable to 29% increase in administrative expenses, and not only in 2021, had administrative expenses grown, but in previous years too.

    Curiously, while earnings were negative, the balance sheet of the Brewery was expanding. Total assets of the company moved to N469.053 billion in 2021 from N310.308 billion as at December 31, 2018, with equity accounting for 28.85% and total liabilities accounting for 71.15% as at December 31, 2021. As at March 31, 2022, 69.63 per cent of the company’s assets were financed by liabilities.

    Some respite?

    Things seem to be improving this year based on the released 1Q 2022 results as the company returns to the path of profit. The unaudited first quarter, 2022 financial result and accounts showed Profit After Tax of N721.167 million from loss after tax of N2.579 billion reported in Q1 2021.

    The growth in earnings was driven by revenue growth, reduced cost of sales and growth in finance income. While revenue grew by 47.63% to N57.521 billion from N38.964 billion in Q1 2021, cost of sales grew slower by 15.67% to N37.567 billion from N32.479 billion in Q1 2021, to position gross profit at N19.954 billion, representing an increase of 207.65 per cent from N6.89 billion reported in Q1 2021.

    The result is an earnings per share of N0.03 up from a loss of 10kobo in the first quarter of last year. Nevertheless, the company continues to struggle with lower margins fueled by its high operating cost and debt service cost. The operating profit margin was just 6.4%. Exchange rate fluctuations and high-interest expenses look likely to continue to condense the operating profit margin in the near future except it does something drastic.

    Despite these challenges, the company’s stock is picking up. The company’s share price has gained 65.66% (N3.25 per share) from year to date, starting the year at N4.95, and traded at N8.20 on May 20, 2022. However, the Brewery shares have returned about 86.36% gains for investors who bought them at their 52-week low trading price of N4.40 per share.

    But now the company has returned to the path of profit after 4 years of losses, sustaining it is what should be its focus, especially in this turbulent, high inflation and interest rates environment occasioned by the Russian-Ukraine related food supply chain and energy crises and resurgent COVID-19. Its debt profile is re-surging again after it was brought down to N110.66 billion in 2020 from N263.6 billion as at December 31, 2019. Owing to high debt profile in 2019, the company announced plans for a rights issue at an offer price of N9 per share. The right issue, which was completed in January 2020, was used to deleverage the company.

    It is no surprise that the company’s earnings have been negative over the last four years. Over these years, operating expenses have increased due to unstable foreign exchange, a hike in inflation rate and economic disruptions due to COVID-19 pandemic.

    Nonetheless, proprietary brand innovation, market penetration, robust revenue and costs/risk management policies, stable and experienced Board are needed to navigate this turbulent environment.

  • CSCS Grows Revenue by 39.2%, Pays Shareholders Total Dividend of N3.7bn

    Posted on May 08, 2022

    In keeping with its commitment to ensuring strong and sustainable returns to its shareholders, the Board of the Central Securities Clearing System (CSCS) Plc has proposed a total dividend of N3.7Billion. Hence, reinforcing the value accretion to its equity owners, who have seen a notable rise in the company's share price over the past year.  The dividend proposal, recently announced at the Company's 28th Annual General Meeting in Lagos, was unanimously approved by pleased shareholders, who commended the executive management for a solid performance, despite the challenging operating environment.  

    The N3.7Billion dividend, which translates to an 83.7% payout ratio, reflects the resilient profitability of the Company, notwithstanding the impact of lower trading activity on most Exchanges in the Nigerian capital market and inflationary pressures. Consolidating on its diligent earnings diversification drive, the Company grew revenue from core operations and ancillary services by 39.2% to N6.4Billion from N4.6Billion in 2020. It almost quadrupled earnings from ancillary services from N526million in the 2020 financial year to N2.2Billion in the 2021 financial year. Notably, income from ancillary services contributed 33.3% and 21.5% of operating revenue and total income for the year, respectively, underpinning Management's strategy towards diversifying and strengthening the earnings fundamentals of the Company, with the ultimate objective of creating sustainable and superior wealth for shareholders and its broader stakeholders. 

    Addressing shareholders, Mr. Oscar Onyema OON, Chairman, Board of Directors of CSCS Plc said, "Notwithstanding the volatile operating environment and moderated capital flows, as reflected in the subdued capital market activities, the earnings fundamentals of your Company remained resilient and indeed stronger than ever. This fact is evident in the impressive revenue growth of 39.2%, driven by stellar growth in ancillary income. The equity market recorded one of the weakest secondary market activities in the past few years, with the average daily traded value of N3.9billion, some 10% below the trading activity recorded in the 2020 financial year, explaining the tepid transaction fees. Albeit income from ancillary services recorded a significant boost, contributing N2.2billion or 21.5% of total income in 2021FY, from N526million or 11.3% of total income in 2020FY.  

    This performance reinforces the capacity of the Management in delivering on the Board's vision result of diversifying the business and enhancing the value accretion prospect to shareholders in a sustainable manner. More importantly, my colleagues and I on the Board of your Company are excited at the prospect of new offerings arising from strategic partnerships and new initiatives. In our oversight role, we are working with the Management to invest relevant resources towards exploring new frontiers for growth, especially as these initiatives are expected to foster retail investor penetration and broader capital market growth." 

    While commenting on the outlook for the business, the Chairman noted: "typical of a pre-election year, 2022 comes with its unique macro challenges, but I am optimistic on the earnings capacity and overall resilience of our business, as we hope to consolidate on the solid foundations and extract synergies opportunities with our participants and partners in sustaining the positive trajectory of the business.  Hence, with the support of shareholders and other stakeholders, CSCS would continue to deliver superior performance and create wealth for shareholders. 

    In the same vein, Mr. Haruna Jalo-Waziri, the Chief Executive Officer, CSCS Plc, said, "Reflecting the ingenuity of our participants and, more importantly, quick adoption of new remote access technologies, the Nigerian capital market remained active through the prolonged COVID-19 crisis. The collaboration of our regulator and participants has been incredible in sustaining our operational protocols and IOSCO PFMI standards."

    Though clearing and settlement activity waned by 10.2% due to lower participation of foreign investors in the Nigerian equity market and a host of macro challenges, we are excited at the growth in our depository assets by 6.1% to N23.0trillion, reflecting new listings of securities across our multiple Exchange partners as well as issuers' and investors' confidence in the safety and secured accessibility of our systems.  

    Mr. Jalo-Waziri said: "Despite the average inflation rate of 17.0% during the year, we sustained our cost-efficiency strategy, leading to a 1.6% decline in operating expenses. Overall, we achieved N5.8Billion and N4.4Billion Profit Before Tax and Profit After Tax, respectively, underpinning the resilience of the business and the commitment of my colleagues and me in delivering on our pledge to create value for shareholders our broader ecosystem sustainably.  

    "It has been twenty-five years of meritorious service as the Nigerian capital market infrastructure. We have pioneered several initiatives and efficiencies in the market and have enjoyed the best collaborative engagements with different stakeholders. While we relish our progress working with other stakeholders in transforming the Nigerian capital market, we reckon there is a long way to go in bridging the gap towards our aspiration of positioning the Nigerian capital market as the hub of securities services in Africa and one of the leading capital markets, globally. To this end, we have reinvigorated our strategic thrust with the development of a medium-term playbook that would enhance our capabilities in executing new initiatives towards deepening the Nigerian capital market and strengthening our business growth frontiers for the mutual prosperity of all our stakeholders."