In the first half of 2023, three major Nigerian brewers reported losses due to increased borrowing costs stemming from rising interest rates and the devaluation of the naira, according to an analysis by BusinessDay of their financial statements. Out of the four beer makers listed on the Nigerian Exchange Group, three incurred losses, while one experienced a significant decline in its profits.
Specifically, Nigerian Breweries Plc, International Breweries Plc, and Guinness Nigeria Plc collectively recorded a combined loss of N89.4 billion in H1 2023, a stark contrast to their N34.7 billion profit during the same period the previous year. Additionally, Champion Breweries saw a staggering 3,600.1 percent decline in its profits, down to N29.1 million.
Analysts attribute these challenges to the substantial devaluation of the naira following the currency's floatation in mid-June, coupled with the continuous increase in interest rates, which raised operating costs for multinational companies with significant expenses denominated in foreign currencies.
The Central Bank of Nigeria raised its benchmark interest rate, the monetary policy rate, for the eighth consecutive time in July to 18.75 percent, further exacerbating the financial pressures on these companies. Finance experts emphasize that these businesses faced increased finance costs, mainly due to the effects of foreign exchange fluctuations on their financial obligations, which eroded their profit margins.
Guinness Nigeria saw the most significant increase in finance costs, soaring by 2,402.3 percent to N53.3 billion from N2.13 billion. Nigerian Breweries' finance costs surged by 262.5 percent to N11.2 billion from N3.09 billion, and International Breweries experienced a 128.4 percent increase in finance costs to N13.17 billion from N5.78 billion. In contrast, Champion Breweries had a relatively modest 12.9 percent increase in finance costs to N40.4 billion.
It's worth noting that while the finance costs escalated, the revenues of the three major brewers experienced only marginal increases or declines, with Champion Breweries witnessing a decline in revenue by 15.2 percent to N5.71 billion.
The situation was further exacerbated by the depreciation of the naira against major foreign currencies after the central bank's changes in the foreign exchange market structure. The challenges faced by these breweries include the removal of fuel subsidies, naira devaluation affecting input costs, and the revaluation of foreign exchange obligations.
In addition to these macroeconomic factors, the competition in the alcoholic beverage industry, coupled with the economic strain on consumers, has led to reduced demand for alcoholic products, affecting the profitability of these breweries.
While beer remains the most widely consumed alcoholic beverage in Nigeria, accounting for a 55 percent market share, top players like Nigerian Breweries, International Breweries, and Guinness Nigeria have been grappling with challenges since 2019 due to increased excise duties and currency depreciation, leading to multiple price hikes.
Analysts also note that the average price of beer increased significantly between 2019 and 2023, with premium beer experiencing a 75 percent average increase, followed by the mainstream and value categories.
In conclusion, the Nigerian brewing industry has been heavily impacted by a combination of factors, including currency devaluation, rising interest rates, increased taxes, and changes in consumer demand, leading to financial challenges for major players in the sector.