A report that was published by Afrinvest has disclosed that three major brewers that are listed on the Nigerian Exchange (NGX), namely Nigerian Breweries Plc, International Breweries Plc and Guinness Nigeria Plc, booked historic pre-tax losses of N254.8 billion in 2023 financial year.
The report also projected that the industry’s volume of sale would contract further in 2024 by 2.7 per cent, adding that the average unrealised foreign exchange losses for the industry would range between N20 billion and N33 billion if foreign exchange rate would average at N1,057 per dollar in 2024 against 2023 average foreign exchange loss of N76.3 billion.
The report, which is titled “Nigeria Brewery Sector Update: Turning the Tide on Bottled Gains?,” said that the rapid spikes in the cost of raw material inputs, cost of doing business in Nigeria and the Central Bank of Nigeria’s (CBN) hike in interest rates compelled the brewers to adjust products’ prices upward by an estimated average of 25 per cent across brand segments in order to stay afloat.
“On the back of these dynamics, the industry’s pre-tax profit (PBT) fell by 1,824.3% y/y to a negative region of N254.8 billion, as all three major brewers: the Nigerian Breweries, International Breweries and Guinness Nigeria booked significant losses – the first time of such on record,” the report said.
It stated that while price increases of breweries’ products supported a modest 12.0 per cent y/y expansion in the industry’s sales revenue, which rose to N1.1 trillion against N976.1 billion in 2022, the sector’s estimated sales volume declined by 5.0 per cent y/y to 18.9 million hectoliters (mhl) in 2023.
The report further noted that the analysis of the performance of the industry’s key cost elements in 2023, like the cost of goods sold (COGS), operating, and financing cost vis-a-vis their impact on the bottom line, revealed that brewers sailed on stormy waters in 2023.
The report said: “For instance, industry COGS rose 15.9 per cent y/y (outpacing revenue growth of 12.0 per cent) to N749.5 billion – the highest on record.
“The faster increase came on the back of intensified pressure on direct production input costs owing to the low domestic supply of key farm inputs, increased excise tariffs on product categories, knock-on effects of the plummeting exchange rate, and the subsisting vacuum in the global supply volume of key inputs – wheat, malt, barley, gasoline, and aluminum created by the lingering Russia-Ukraine war (Russia and Ukraine are among global largest suppliers of these items).
“As per the operating performance in the year, we noted a 10.2 per cent and 3.1 per cent y/y jump in the industry’s administrative, marketing and distribution costs to N80.9 billion and N198.6 billion, respectively.”
The report furthermore showed that the industry’s finance cost accentuated 461.1 per cent y/y to N119.1 billion. This, we believe, reflected the combined impact of negative exchange rate movement on FCY loans as well as tighter domestic and foreign interest rate environments.
It added that even as brewers increased their leverage positions to sustain operations, the industry’s average leverage metric worsened to 0.71:1.00 from 0.43:1.00 in 2022.
The report, which foresaw a mixed bag of boom and gloom, said that the prevailing weak fiscal capacity of the nation has made it compelling for the federal government to remain aggressive with taxation to meet part of its growing expenses.
“On the back of this reality, we do not rule out the possibility of a further upward review in the excise charge on alcohol, wines and spirits products later in the year, given that the 2022-2024 excise roadmap would be due for review by mid-year,” it said.
On the positive we see the potentials for brewers to expand sales to neighbouring countries without ant tariff hindrance due to Nigeria’s membership of the African Continental Free Trade Area (AfCFTA) agreement and cheaper export opportunities presented by Nigeria’s weak exchange rate.
