Brewers incur retained losses as naira weakens

Brewers incurred retained losses in the nine months of 2024 due to naira devaluation, BusinessDay analysis shows.

Three out of four brewers analysed recorded negative retained earnings in the nine months of 2024, indicating prolonged financial losses fuelled by the Nigerian challenging business environment. Only one recorded retained earnings.

Retained earnings are the net income left over for the business after it has paid out dividends to its shareholders. Negative retained earnings often serve as indicators of prolonged financial losses, potentially foreshadowing bankruptcy. Such circumstances may also imply that the company disseminated borrowed funds to shareholders in the form of dividends.

Further analysis reveals that Guinness Nigeria Plc, Nigerian Breweries and International Breweries collectively incurred retained losses amounting to N475.4 billion in the nine months of 2024 while Champion Breweries recorded retained earnings of N3.04 billion.

Adeola Adenikinju, president of the Nigerian Economic Society (NES), said the exchange rate challenge is still there as brewers are finding it extremely difficult to source their raw materials due to 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,” he stated.

“Production cost has also gone up for brewers which include energy cost, transportation, taxes by the government. The business environment has been very hostile for them. Interest rate is also high, hence servicing loans borrowed from banks is a major challenge,” Adenikinju said.

Uchenna Uzo, a professor of Marketing at Lagos Business School (LBS), said the retained losses by the brewers is as a result of inflation that has continued to rise, the frequent increase in PMS prices and expenditure on packaging innovation.

“The exchange rate has also been an issue for brewers, it is more stable than it was last year but the naira is still much weaker but there are market adjustments by brewers to the situation,’ he said.

Bolade Agboola, consumer goods analyst at ChapelHill Denham, said: “The retained losses recorded by the brewers implies that they did not make profit during the period and as a result of the losses they made. This resulted in a negative retained earnings.

“The trend of retained losses will continue in the next quarter because FX is not yet stable and these firms still need to import their raw materials hence in the fourth quarter of 2024, majority of the brewers will still face the challenge.”

Nigerian brewers have been affected by the naira devaluation as some are reliant on imported inputs which have impacted their bottom lines and diminished shareholder returns.

Guinness Nigeria recorded an after-tax loss of N12.2 billion in the nine months of 2024, while Nigerian Breweries loss stood at N149.6 billion. International Breweries’ loss stood at N112.8 billion but Champion Breweries recorded an after-tax profit of N21.5 million.

In the full year of 2023, Nigerian Breweries posted a net loss of N105.8 billion, occasioned by an FX revaluation loss of N153.3 billion. Guinness Nigeria also posted a net loss of N54.8 billion at the end of its financial year ending June 30, 2024, reporting an FX revaluation loss of N89.4 billion and a N20.5 billion increase in its loan to Diageo International due to the devaluation of the naira.

Since stabilising around the N1,500/$ level in May, the Naira has made a slow climb, now trading around N1,650/$ in the parallel and official markets. However, a review of the third-quarter financials of some of these beer makers shows that they are still reeling from the impact of the volatility of the Naira.

Nigerian Breweries Plc is currently in the market for its N600 billion capital raising through a rights issue, which it plans to clear its N500 billion foreign exchange (FX) debt. The biggest brewer in Nigeria has been battling foreign exchange (FX) losses, as the country continues to struggle with dollar scarcity.

“The tough business landscape characterised by double-digit inflation rates, naira devaluation, FX challenges, and diminished consumer spend has taken its toll on many businesses, including ours,” said Hans Essaadi, managing director/chief executive officer, Nigerian Breweries Plc, when the company obtained the approval fro,m the Securities and Exchange Commission (SEC) to commence its Rights Issue of 22,607,491,232 Ordinary Shares of N0.50 each at N26.50 per share.

“Nigerian Breweries Plc has faced considerable challenges, including rising cost pressures, mounting debt, and increased foreign exchange (FX) losses. However, this Rights Issue is expected to provide much-needed relief by enabling the company to settle its FX-denominated debt, enhance its capital structure, and improve overall operational efficiency.”

Nigerian Breweries, during the first nine months of 2024, posted a gross margin of 30 percent, an eight percentage point decline from the 38 percent gross margin recorded in the nine months 2023. Guinness Nigeria’s gross margin in the first quarter of 2025 was 11 percent, a significant decline from the 30 percent gross margin posted in Q1 2024.