Naira volatility leaves Nigerian Breweries counting highest losses

The depreciation of the naira has left Nigerian Breweries record its second straight losses – the biggest ever on record — in 2024 after the beer maker posted N144.9 billion in net losses, according to the company’s audited financials.

But despite the FX-induced losses, the pioneer and largest brewing company in Nigeria reported an unprecedented revenue milestone of N1.1 trillion, a significant 81 percent increase from the N599.6 billion recorded in 2023.

The direct cost of production for the beer and non-alcoholic beverages maker rose to 70.5 percent of turnover from 64.5 percent as the cost of imported raw materials shrank revenue.

CEO Hans Essaadi said in April 2023 that imports account for almost half of Nigerian Breweries’ input costs, leaving it at the mercy of exchange rate swings.

The spending on raw materials and consumables more than doubled to N615.5 billion during the review period, highlighting the grave impact of FX pressures.

“Foreign exchange volatility and limited access to foreign capital created additional hurdles for businesses, while the lingering effects of the fuel subsidy removal and Naira devaluation significantly increased operating costs across industries,” the company stated in its earnings release.

The naira has since the removal of controls by the Central Bank of Nigeria (CBN) in June 2023, allowing it to be market driven, recorded its worst times, plummeting by over 70 percent.

But the naira has begun to shore up with many analysts projecting a bullish year for the currency that was for most part of 2024 accorded the worst performer.

Net loss on foreign exchange transactions stood at N157.6 billion, 2.8 percent higher than a year ago.

Adeola Adenikinju, president of the Nigerian Economic Society (NES), said exchange rate fluctuation remains the biggest challenge still for brewers who are finding it extremely difficult to source their raw materials due to the naira devaluation.

“Inflation is also an issue for brewers because it is increasing the cost of raw materials and workers are asking for increased wages, while purchasing power has declined significantly for buyers because the real income has been compressed by inflation. The buyers are not purchasing the quantity they used to,” Adenikinju stated.

Read also: High costs, naira volatility dim optimism in services, trade sector

A breakdown of the audited results showed a 51 percent growth in group gross profit, rising from N212.6 billion in 2023 to N320 billion in 2024.

Despite the impact of rising input costs, the company’s operating profit also surged by 59 percent from N44 billion to N70 billion.

Net finance costs stood at N252.8 billion, up from N189.2 billion a year ago. Loss before tax went higher by one-fifth to N182.9 billion.`

Commenting on the financials, CEO Essaadi, attributed the impressive revenue growth to key business strategies, including pricing initiatives, market expansion, innovation, and operational efficiencies.

“Despite macroeconomic headwinds faced by the company, group operating profit surged by 54 percent, reflecting the success of cost management, process optimization and strong operational performance,” Essaadi said.

The company is diversifying its operational base to improve its profitability and limit its FX exposure. It announced the acquisition of an 80 percent stake in Distell Nigeria last June, helping it branch out into the manufacturing of wines and spirits.

Rights Issue gains used to “significantly reduce future currency risks”

Uaboi Agbebaku, Nigerian Breweries’ secretary and legal director in a statement signed on Friday disclosed that the company took bold steps to mitigate the factors impacting net profit and to strengthen its financial standing.

These measures included a successful Rights Issue, which was backed by shareholders as part of a business recovery plan.

Agbebaku further stated that these strategic steps have already begun yielding positive results, as evidenced by the company’s strong recovery and positive momentum in the last quarter of 2024.

“In Quarter 4, Revenue grew by 89 percent while operating profit increased by 145 percent. Notably, net finance costs went down by 75 percent leading to a return to profitability in the quarter, the first time in two years.

“The return to a positive net profit position marks a major step in the company’s journey towards long-term profitability and financial stability. It also reinforces the effectiveness of ongoing transformation initiatives.

“The proceeds from the Rights Issue have been utilised to significantly reduce future currency risks and the board remains committed to maintaining the improved financial position,” he said.