BREWING RE-ENGINEERING AT INTERNATIONAL BREWERIES

Have you heard of the merger being put together between International Breweries (IBL) and private limited liability brewers in Nigeria? Then rest assured that for IBL, says annual report for the year to March this, what may in fact be brewing is financial engineering.

According to the report released this week, virtually everything in the company grew very strongly within the year, including, unfortunately, costs outside management control.

Total income grew by 39.4% to N32,816.6m slightly lower than core revenue's 40.6% to N32,711.2m but, IBL not only ended the year with 20.9% drop in profit to N2,891.7m; it also crossed the tape with a heavy load: A total of N14,112.9m working capital defucit, almost twice 2015's closing figure.

Simple, IBL was plagued by massive jump in finance cost to N5195.7m compared to N1709.4m previously; cost of sales 39.7% growth to N17 546.8m; marketing cost rise 41.5% to N5089.8m and 98.6% dry up of interest income ti just N2.98m

However, the strangle hold was more from finance costs but to be more specific foreign exchange related losses, realised and yet to be realised, from N254.7m in 2015 to N4308.9m in 2016. Part of this was related to burden of servicing $62m loan obtained in 2015.

The component of bank interests on oveedrafts and other loans actually dropped by 43.3% to N784.6m.

Thus, 2016 smiled on IBL through sales growth; increased Other income and wwll controlled administration cost growth (just 3.79%) but exchange losses and other costs outside control wiped this into a frown.

So, how does IBL ride the crest of the moubting working capital deficit and still likely forex related losses? First option: Seek merger with sister companies to synergise and reduce costs drastically while holding to marker share and then hope that the forex illwind will blow away soon.

Alternatively, inject new capital or sell off any asset that is idle or is a drag then reduce the foreign debt exposure as muxh as possible. Tough option but it looks like the real way out, eventually.

INTERNATIONAL BREWERIES Full yr.Nm
                              2017.           2016
Total Income.   32,816.6.      23,539.3
Core revenue.  32,711.2.      23,269.4
Cost of sale.      17,546.8.      12,560.4
Other income       102.4.              44.8
Marketing etc    5089.8.          3,596.4
Administration  2092.7.          2016.2
Interest income.       2.98.          225.1
Finance cost.      5195.7.            1709.4
Profit before tax 2891.7.           3656.8
Profit margin %       8.81.               15.5
Working capital  (14112.9)      (7763.4)

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