Brewers operating in Nigeria are anticipating a more profitable year devoid of volatility and a boost on their operational efficiency driven by the recent stability of the naira.
The firms operating in this sector have experienced varying macroeconomic headwinds, ranging from naira devaluation and inflationary pressures on their cost of operation, which made them record recurring losses last year.
Analysts believe that the 2025 financial year signals a green light to profitability given the expectation of a more stable naira and the firms’ operational efficiency to combat economic headwinds.
“Given the expectation of a more stable naira and price increase across various companies last year, there is an expectation that brewers will return to profitability in 2025,” said Bolade Agboola, consumer goods analyst at ChapelHill Denham.
“Brewers will experience a slight increase in operating cost but it will be nothing significant as most companies are trying to manage cost,” Agboola stated.
Jennifer Audu, consumer goods and breweries analyst at FBNQuest, stated that the naira devaluation faced by brewers in 2024 will have a lower effect on them in 2025.
“The shocks from the devalued naira are low compared to the volatility experienced last year hence there is an expectation of minimal risk on the brewers’ operating expenses,” she said.
“Brewers are better prepared and would prioritise operating efficiency in 2025,” Audu stated.
Uchenna Uzo, a professor of Marketing at Lagos Business School (LBS), said the exchange rate which has been an issue for brewers is more stable than it was in 2024 but the naira is still much weaker. However, there are market adjustments by brewers to the situation.
Analysts at Vetiva Capital Management Limited, in their consumer goods outlook report for 2025, stated that brewers’ operating expenses soar on cost pressures.
“Operating performance across the sector was underwhelming, reflecting the industry’s inherent legacy cost structure. Maintaining market dominance necessitates substantial investments in plant, labour, and distribution, resulting in significant and ongoing maintenance costs,” they said.
Read also: Highlights of Nigerian brewers’ 2024 performance
According to the report, these costs were further exacerbated by the persistent macroeconomic headwinds experienced in 2024.
“Nigerian Breweries witnessed a decline in Earnings Before Interest and Taxes(EBIT), margin to 4 percent from 7 percent in the prior period. Guinness Nigeria recorded an EBIT loss of N6.9 billion, while International Breweries achieved a modest EBIT margin of 6 percent, representing an improvement from its prior 2 percent.
“Net profitability was severely impacted by elevated foreign exchange losses and increased interest expenses. Nigerian Breweries, International Breweries, and Guinness reported losses of N149.5 billion, N112.8 billion, and N12.2 billion, respectively,” it stated.
Capital raises show investors’ optimism
“Our 2024 forecasts anticipated capital raises for the brewers, as we had previously characterised their balance sheets as ‘sinking.’ As expected, Nigerian Breweries (NB) and International Breweries sought fresh capital from existing shareholders,” Vetiva analysts stated.
“Meanwhile, Guinness Nigeria experienced a change in controlling ownership. These capital-raising initiatives were critical in ensuring the going concern status of the firms.
“Notably, the parent company of International Breweries (AB InBev) increased its holdings during a recent rights issue,” it stated.
Similarly, Heineken committed to picking up all of its rights ahead of the issuance. Together, investors pushed N1.1 trillion into the rights issuances, according to the report.
Audu said the brewers just raised capital last year (International breweries and Nigerian breweries), stating that the possibility of them having another capital raise this year is low.
“There will not be capital raising for brewers in 2025, given that Nigerian Breweries and International Breweries already did the right issue in 2024,” Bolade Agboola, consumer goods analyst at ChapelHill Denham.
Brewers’ performance mirrors bruised bottom lines on imported input
ChapelHill Denham, in its ‘Consumer goods update’ stated that for brewers, indication reveals that imported raw materials are cumulative of 50 percent on average which reflects the vulnerability of companies operating in the brewery sector to fluctuation in commodity prices and exchange rate volatility.
The analysis of brewers’ latest financial result reveals that the cost of sales surged 106 percent to N869.4 billion in nine months of 2024. The brewers recorded N421.9 billion in the same period of 2023.
Nigerian Breweries recorded the highest cost of sales of N500.9 billion in the nine months of 2024 from N249.2 billion in the similar period of 2023. Following that, International Breweries also recorded an increase in cost of sales to N248.6 billion from N126.4 billion.
Guinness’ cost of sales rose to N111.6 billion from N41.1 billion while Champion Breweries’ cost of sales grew to N8.28 billion from N4.92 billion.
Further analysis reveals that some brewery companies relied on imported inputs, which bruised their bottom lines and diminished shareholder returns.
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Overview of 2024 performance
Guinness Nigeria Plc, International Breweries, and Nigerian Breweries recorded N274.5 billion after-tax loss in the nine months of 2024 due to high operating costs. The exemption was Champion Breweries which reported an after-tax profit of N386.7 million.
In the same period of the previous year, Champion Breweries recorded an after-tax loss of N77.69 million, International Breweries (N28.6 billion loss), and Nigerian Breweries (N57.2 billion loss) while the only exception was Guinness Nigeria Plc which recorded an after-tax profit of N2.59 billion.
Further analysis reveals that three out of four brewers analysed recorded negative retained earnings in the nine months of 2024 due to the Naira devaluation, indicating prolonged financial losses. However, only one recorded retained earnings.
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.
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.
Analysts’ expectation for consumer goods firms in 2025
Analysts are optimistic that the frequent macroeconomic challenges faced in the previous year are already subdued and businesses may begin to get some breather just with the stability of the exchange rate.
Oluebube Nwosu, while speaking in an interview with News Central titled ‘Nigeria’s consumer goods sector in 2025’ said there will be stabilisation of macroeconomic headwinds.
“FX will be much more stable, there will be a mild recovery in consumer goods firms’ gross margins and Earnings before interest and taxes,” he said.
“We anticipate more stability in the exchange rate, hopefully, the fuel prices will not be changing as often as they did. Therefore consumer goods firms will be very cautious about their cost and not be wasteful,” Uchenna Uzo, professor of marketing at Lagos Business School
He said some firms will close down some product lines they had before which are unprofitable or the new products launched last year that failed will be removed.
Muda Yusuf, chief executive officer of The Centre for the Promotion of Private Enterprise (CPPE), said some consumer goods firms exited to scale down operations in 2024, however, this year we expect that the macroeconomic environment will be better.
“Some FMCG will have to drop their prices to drive growth which will depend on what happens to the key inflation drivers dissipate or slow down, such as the exchange rate which is looking a bit more stable now and energy prices is also looking stable now,” he stated.
Chapelhill Denham sector update for Consumer Goods firms titled ‘Challenging 2024, Promising Outlook in 2025’ stated that the outlook for revenue growth is positive for the FMCGs, considering the room for further price increases as well as other strategies to drive sales growth.
“FMCGs have been investing in production systems as well as optimising capacity utilisation, expanding existing production lines as well as improved product innovation to satisfy consumer needs and preferences, and expanding distribution networks,” analysts at Chapelhill Denham said.
“In 2025 easing inflation will help global retail volumes grow by an expected 2.2 percent, but consumer confidence will remain weak,” an EIU report titled ‘Consumer Goods and Retail Outlook 2025.’” stated.
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