Economic Ripples of Beer Industry Losses in Nigeria
It’s a trying time for major operators in the Nigerian brewery industry as the rising cost of production, foreign exchange crisis, high cost of sale, and falling purchasing power of the people are pushing beer makers into huge losses, writes Festus Akanbi
As the current administration rushes from pillar to post to alleviate the mounting economic load on the people, the reality is that the current challenging environment is forcing some corporate groups to make harsh decisions to survive.
In response to the rising inflation, higher cost of sale, eroding purchasing power, naira devaluation, and the attendant scarcity of foreign exchange, hike in petrol prices, and higher tariff for electricity, among others, operators in the nation’s brewery industry are compelled to announce increases in the prices of their products. Nigerian Brewery Plc okayed its second price adjustment in February, while Guinness Nigeria Plc commenced a new price regime for its products on March 13, 2024.
Season of Losses
However, when their full-year performance results for 2023 were made public, the severity of the problems became manifest as the three leading beer manufacturers in Nigeria, Nigerian Breweries, Guinness Nigeria Plc, and International Breweries posted huge losses.
Driver of the losses, according to findings are foreign exchange, the rising cost of finance and production.
Nigerian Breweries
In its operating results for the period ended 31st December 2023, Nigerian Breweries Plc announced a net loss of N106 billion, largely induced by the impact of the devaluation of the naira on its foreign exchange transactions.
The audited financial report of the brewing company for the year ended December 2023, shows that the loss driver is a net foreign exchange (FX) loss of N153.3 billion, which swelled from an FX loss of N26.3 billion in 2022.
Additionally, finance cost multiplied more than four times in the year to N36.4 billion at full-year, reflecting the company’s enlarged balance sheet debts.
The last quarter produced N49.3 billion or 46.4 per cent of the full year’s loss, which extended the closing loss figure of N57 billion for the third quarter.
Apart from net FX losses and cost of finance, the company was pressured by increased production costs that consumed more than all the gains in sales revenue in the year.
While sales revenue grew by N49 billion to N599.6 billion in the year, production costs rose by roughly N50 billion to close at N387 billion. This means additional sales revenue was insufficient to cover the additional cost needed to produce the units of the products sold.
Recovery Plan
In response to the difficult operating environment, the company has indicated its plans for company-wide reorganisation as part of a strategic recovery plan.
In letters signed by the company’s Human Resource Director, Grace Omo-Lamai, and addressed to the leadership of the National Union of Food, Beverage & Tobacco Employees (NUFBTE) and the Food Beverage and Tobacco Senior Staff Association (FOBTOB), the company informed both unions that its proposed plan would include operational efficiency measures and a company-wide reorganisation that includes the temporary suspension of operations in two of its nine breweries. As a result, and by labour requirements, the company invited the unions to discussions on the implications of the proposed measures.
Speaking on these developments, Managing Director/CEO of Nigerian Breweries Plc, Hans Essaadi said: “We recognise and regret the impact that the suspension of brewery operations in the two affected locations may have on our employees. We are committed to limiting the impact on our people as much as possible by exhausting all options available including the relocation and redistribution of employees to our other seven breweries, and providing strong support and severance packages to all those that become unavoidably affected. We are also committed to supporting our host communities in ways that ensure they continue to feel our presence.”
Guinness Nigeria
Guinness Nigeria Plc, famous for the production of brands like Harp, Guinness, Johnnie Walker, Baileys, Smirnoff, Gordon’s Dry Gin, Satzenbrau, Dubic Malt, Malta Guinness and Orijin, recorded an after-tax loss of N5.23 billion for the six months ended December 2023, the first time in three years as against a profit of N4.02 billion in the same period of last year.
It recorded a N5.23 billion loss after tax in 2023 after its cost of borrowing from lenders to finance its activities and foreign exchange losses more than doubled during the year.
The company’s financial statement revealed that it ran at a loss despite growing its revenue by 20.3 per cent from N118.45bn in 2022 to N142.59bn by the end of 2023.
The company posted N4.02 billion profit after tax in 2022, but it became a loss-making company after it spent N23.88 billion on finance expenses, an amount which rose by 256.4 per cent from the N6.7 billion incurred in 2022.
A breakdown of the finance cost for the full year showed that the loss on remeasurement of foreign currency balance was N17.27 billion, up from N2.77 billion in 2022, while the exchange difference on foreign currency loan rose to N3.66 billion from the N1 billion difference in 2022.
Interest expenses on loans were N777.8 million in 2023 up from the N400.5 million recorded in 2022, while accrued interest rose to N1.47 billion compared to the N427.9 billion recorded in 2022.
The company’s books reveal that another factor that drove the loss was the cost of sales, which rose from N76.1 billion in 2022 to N96 billion in 2023.
International Breweries
For International Breweries Plc, maker of Castle Lite, Trophy, Beta Malt, and Hero, it was a matter of going from bad to worse scenario as its loss position of 2022 was worsened in the 2023 performance.
Whereas it posted a loss of N21.63 billion in 2022, its precarious performance increased in 2023 when the company declared a loss of N70.03 billion.
The company’s losses are on the backdrop of N55.98 billion net foreign exchange loss – unrealised posted in 2023 from N5.11 billion net foreign exchange loss – unrealised declared in 2022.
It also declared a N14.4 billion net foreign exchange loss – realised in 2023 compared with a N8.36 billion net foreign exchange loss – realised reported in 2022.
Though International Breweries grew its revenue by 19.18 per cent to N260.6 billion in 2023 from N218.65 billion in 2022, operating costs also contributed to the company’s worst performance in over 10 years.
The company in its audited result and accounts for the 2023 financial year, however, declared N174.33 billion cost of sales, a growth of 20.16 per cent from N145.08 billion in 2022.
Industry affairs commentators feared that the recent price hikes imposed by beer manufacturers and now their string of losses have threatened to sever the cherished bond between average Nigerians and their beloved brew, arguing that as the cost of indulging in this cultural staple climbs ever higher, access to the simple pleasure of sharing a cold beer with friends becomes a luxury beyond reach for many.
Analysts however argued that the recent string of losses by leading beer makers in Nigeria is poised to have significant ripple effects on both the economy and social life.
An Ogun State-based businessman, Mr. Oladosu Morakinyo explained that “Economically, it may lead to decreased government revenue from taxes and levies imposed on the brewing industry, potentially impacting budgets for social programs and infrastructure development.
“Moreover, job losses or reduced wages within the sector could contribute to higher unemployment rates and decreased consumer spending power, affecting various sectors of the economy.”
He explained that socially, the downturn could alter consumption patterns, potentially leading to shifts in social gatherings and entertainment preferences. This, he said, could also impact the livelihoods of individuals involved in the distribution and retail of alcohol, potentially leading to social tensions and challenges.
Overall, the losses incurred by leading beer makers in Nigeria have the potential to reverberate across both economic and social landscapes, necessitating strategic responses from stakeholders to mitigate adverse impacts.
