Exchange Rate Pressures Induce Bottom line Losses

International Breweries reported a 70% YoY revenue growth in Q2 2021. We attribute the revenue growth to a combination of price and volume growth. On volume growth, we posit that the Company consolidated its strategy of increased market penetration, as its products continued to enjoy strong demand. On price growth, we posit that the higher input costs necessitated the need to raise prices. We also link the overall revenue growth to base effect, given a lower-than-average revenue in Q2 2020 during the peak of the coronavirus pandemic.

Cost margin improved to 79% in Q2 2021 from 87% in Q2 2021, on account of slower pace of increase in cost of sales (+56% YoY to N34.06bn). We believe that economies of scale and price realisation resulted in the lower cost margin recorded in Q2 2021.

Gross profit, therefore, rose by 165% YoY to N8.93bn in Q2 2021. Operating expense increased by 52% YoY to N11.27bn in Q2 2021, driven by higher marketing expense (+220% YoY to N4.71bn) during the period. We link this to heightened competitive pressures in the brewing industry, amid declining households’ purchasing power.
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