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BusinessDay

Three takeaways from beer makers’ performance in Q1

Three takeaways from beer maker’s performance in Q1

The Nigerian brewery industry, renowned for its vibrant beer culture, faced a challenging start to the year as it grappled with shrinking margins and mounting pressure on profitability, according to BusinessDay’s analysis.

The brewery sector, once characterized by healthy profit margins, encountered a notable decline in the first quarter of 2023 as the pain of a severe cash crunch alongside rising production costs, foreign exchange losses, increased interest rates and constrained consumer spending bites deeper.

Findings by BusinessDay showed Nigeria Brewery, Guinness Plc, International Brewery and Champion Brew recorded a dip in profit recording a loss of N10.225 billion in the first quarter of 2023 compared to a gain of N21.35 billion recorded in the same quarter of 2022.

Here are major findings

Finance cost dipped profit by 118.4 percent.

In the first quarter of 2023, the Nigerian brewery industry faced a significant setback as finance costs recorded a substantial loss, resulting in a dip in profitability. The finance costs surged by 118.4 percent, reaching a loss of N12.11 billion compared to N4.88 billion in the same period of 2022.

The primary driver behind this surge in finance costs was the increase in interest expenses on borrowing. The industry witnessed a rise in interest rates due to continuous adjustments by the Central Bank of Nigeria. As a result, breweries faced higher interest expenses, contributing to a substantial increase in finance costs.

Furthermore, the brewery industry experienced a decline in revenue during the first quarter of 2023.

Revenues contracted by 6.02 percent, amounting to N234 billion compared to N249 billion recorded in the same period of 2021. This decline in revenue added to the financial challenges faced by breweries, further impacting their profitability.

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Higher OPEX, rising input costs cause profit decline

In the first quarter of 2023, the brewery industry in Nigeria faced significant challenges as operating expenses and the cost of sales experienced losses. The Brewers reported an increase in operating expenses, amounting to N-66.22 billion, compared to N-49.983 billion recorded in the same period of 2022.

Furthermore, the cost of sales also recorded a loss, growing by 9.91 percent to N 162.2 billion in the period under review, compared to N 147.57 billion recorded in the same period of 2022.

The persistent rise in operating expenses is primarily a result of the challenging operating environment in Nigeria. The prevailing highly inflationary environment, devaluation of the naira, and high energy prices played a significant role in driving up expenses for the brewers. These external factors put pressure on the industry’s profitability, leading to increased costs across the board.

Additionally, the breweries have been placing continued emphasis on increasing brand visibility, which has contributed to the upward trajectory of operating expenses.

Cash crunch causes dip in cash and equivalents

A struggling economy, characterized by inflationary pressures and currency devaluation, has compounded the challenges faced by breweries. These macroeconomic factors have resulted in reduced consumer spending, impacting the demand for alcoholic beverages and further exacerbating the cash crunch.

The cash crunch, characterized by a scarcity of liquid funds, posed a serious challenge to brewers in Nigeria.

The brewing industry, which relies heavily on cash flow to manage day-to-day operations and fund strategic initiatives, has been particularly affected by the cash crunch. Brewers faced constraints in purchasing raw materials, and paying suppliers, among other critical financial obligations.

It recorded a decline to N108.76 billion in the first quarter of 2023 from N141.78 billion recorded in the same quarter of 2022.