International Breweries: Cost inefficiences weigh on operating performance as financial leverage improves
The company’s cost of sales grew 13.2% y/y to N24.5 billion in Q1 2020, driven by double-digit growth in raw material cost.
April 30, 2020
In its recently released Q1 2020 results, International Breweries’ revenue increased 0.7% y/y to N35.3 billion in Q1 2020 from N35.1 billion in Q1 2019. On a q/q basis, revenue growth was flattish at 0.7% q/q growth from N35.1 billion in Q4 2019. The flattish revenue performance in Q1 2020 signifies slowing momentum of its growth-oriented strategy built on undercutting competitors’ market share through penetration pricing. Thus, we think the company may consider rethinking its discount strategy by implementing some price hikes in line with what other market players have done. We note that Q1 2020 performance does not reflect volume weakness caused by the COVID-19 lockdown measures, thus we anticipate weaker Revenue in Q2.
Cost of Sales (adjusted for depreciation) grew 13.2% y/y to N24.5 billion in Q1 2020 from N21.6 billion in Q1 2019. The growth in Cost of Sales was driven by double-digit growth in raw material cost (+12.6% y/y to N22.6 billion) which was faster than the growth in revenue, thereby implying increasing cost per unit.
The company’s cost of sales grew 13.2% y/y to N24.5 billion in Q1 2020, driven by double-digit growth in raw material cost.
April 30, 2020
In its recently released Q1 2020 results, International Breweries’ revenue increased 0.7% y/y to N35.3 billion in Q1 2020 from N35.1 billion in Q1 2019. On a q/q basis, revenue growth was flattish at 0.7% q/q growth from N35.1 billion in Q4 2019. The flattish revenue performance in Q1 2020 signifies slowing momentum of its growth-oriented strategy built on undercutting competitors’ market share through penetration pricing. Thus, we think the company may consider rethinking its discount strategy by implementing some price hikes in line with what other market players have done. We note that Q1 2020 performance does not reflect volume weakness caused by the COVID-19 lockdown measures, thus we anticipate weaker Revenue in Q2.
Cost of Sales (adjusted for depreciation) grew 13.2% y/y to N24.5 billion in Q1 2020 from N21.6 billion in Q1 2019. The growth in Cost of Sales was driven by double-digit growth in raw material cost (+12.6% y/y to N22.6 billion) which was faster than the growth in revenue, thereby implying increasing cost per unit.
