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International Breweries regains market share, lifts profit - THE CITIZEN

By The Citizen
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International Breweries closed its 2012/13 financial year with an increased market share in a slowly growing breweries industry. The company achieved an exceptional growth of 75.5% in sales revenue to N17.39 billion, a growth rate that is unmatched in the industry in the year.

The high growth in sales revenue is against a slow down in sales among the industry leaders at 11.7% for Nigerian Breweries in 2012 and a flat growth of 2.1% for Guinness Nigeria. This is an indication that International Breweries regained significant market share during the financial year ended March 31 2013.

The company's 15-month account shows that the strong growth in sales revenue is accompanied by cost moderation, resulting in a big lift in profit performance. The ability to keep cost of sales relatively low was a major favourable development in the company in the year.

Cost of goods sold grew at 42.8% to N9.69 billion compared to 75.5% growth in sales revenue. The cost per naira of sales therefore went down from 68 kobo in 2011 to 56 kobo in 2013. The company raised gross profit margin from 32% to 44% over the review period.

Another major cost saving came from moderation in marketing and promotion expenses. This means the company has used a significantly reduced cost to generate a naira of sales revenue in the year.

The company also has not been hurt by interest charges that are eroding profit margins of companies generally. Instead, it reversed its position from net interest charges of N79.4 million in 2011 to a net interest income of N18.4 million in 2013. Increased borrowing witnessed in the course of the year could however change the story in the current financial year.

One major expense line remained out of control during the year and this is administrative cost. The cost item had tripled at N3.31 billion by the end of the third quarter and constitutes a major part of the N4.29 billion distribution/administrative expenses at full year. Administrative expenses therefore claimed an increased share of sales revenue at about 25% in 2013 compared to 10% in the preceding year.

The high growth in sales revenue and cost moderation in other key expense lines more than compensated for the increase in administrative cost. After tax profit therefore soared from only N199 million in 2011 to N2.51 billion at the end of the 15-month account in March 2013.

The company converted 14.4% of its sales revenue into after tax profit in 2013, advancing from only 2.0% in the preceding year. This is a move against the industry trend. Nigerian Breweries recorded a decline in net profit margin from 18% in 2011 to 15.1% in 2012. Net profit margin of Guinness declined from 12.1% in 2011 to 11.6% at the end of its financial year in June 2012. Its net profit margin went down further to 9.8% at the end of its 3rd quarter last March.

International Breweries earned 71 kobo per share in 2013, up from 9 kobo it earned in 2011. The company has proposed a cash dividend of 25 kobo per share or a bonus of 1 for 85. This is the first dividend that the company is offering to shareholders in the past five years.

The register of shareholders is scheduled to close on 19th July and payment is to be expected on 13th August 2013. This is a dividend pay-out of 35.2% and a dividend yield of about 1.0%. Net assets per share stood at N2.87 at the end the 2013 financial year.

Major developments in the company's balance sheet during the year include a 48.8% rise in inventories and a leap of 186% in debtors and other receivables. This means the company employed a lot of trade credit inducements to achieve the strong growth in sales revenue. All the same there was a major improvement in cash balances, which advanced by more than 227% during the year.

There was also a drop of 46.5% in trade and other payables. The developments impacted adversely on the cash flow and the company had to resort to massive borrowings to keep the business running. Short-term borrowing advanced from only N136 million in 2011 to N2.42 billion at the end of the 2013 financial year.

Long-term borrowings also rose from N39.6 million to N3.79 billion over the same period. This seems to suggest that interest charges could rise considerably in the current financial year.

The company is expected to maintain relatively strong growth in sales revenue in the current financial year and favourable cost behavior is again likely to sustain profit growth. Further gain in profit margin isn't likely however, as increased borrowing are expected to raise interest expenses. A continuing growth in profit is expected but the company needs to check the high growth in administrative cost. Dividend payment is expected to be sustained.