Inflation, currency devaluation push Nigerian Breweries into N78bn pre-tax loss

Onome Amuge

The combination of a sharp decline in consumer spending due to the removal of fuel subsidies and a sudden devaluation of the currency by the Central Bank of Nigeria has led to a loss position for Nigerian Breweries Plc.

For the nine-month period ending September 2023, Nigerian Breweries reported a loss before tax (LBT) of N78.163 billion as against profit before tax (PBT) of N19.09 billion in the same period of 2022, representing a decline by 487.6percent. It also posted a loss after tax of N57.19 billion, a sharp contrast to the profit of N14.75 billion it reported in the same period last year.

The impact of the central bank’s policies has been severe, leading to a significant decline in consumer spending and a reduction in the purchasing power of Nigerians. Despite the fact that the company’s revenue grew by 2.12 per cent to  N401.80 billion in September 2023 from N393.44 billion in the same period of 2022, the effects of rising inflation are still evident.

The company’s financials shows that while the revenue growth is encouraging, the company has been struggling to cope with rising input costs and declining purchasing power, which have been exacerbated by the launch of the AMA plant in Enugu in 2022.

Nigeria Breweries’ exposure to imported inflation has been a major challenge, as it has to contend with rising costs of imported raw materials. The company has been making efforts to reduce its reliance on imported raw materials, but this is a long-term process.

In the meantime, the company’s cost of sales has been impacted by the rising cost of raw materials and consumables, which represents 71 per cent of its total cost of sales. This has led to a shrinking profit margin, which is now only a fraction of every N1 of revenue generated by the company.

According to Uaboi G. Agbebaku, Nigerian Breweries’ company secretary, the overall decline in volumes was due to continued pressure on disposable income and the socio-political challenges that have impacted various regions of the country. However, there was an increase in the volume of flavoured beer, led by Desperados.

Agbebaku noted that revenue increased by a low single-digit percentage due to pricing that was implemented to mitigate inflation.  He stated further that the company’s operating profit was affected by lower volumes, higher input costs as a result of inflation and the devaluation of the naira, as well as a one-off restructuring cost.

The company secretary explained that pricing and cost savings initiatives were not sufficient to fully offset the rising input costs. He added that a combination of foreign exchange losses as a result of the naira’s depreciation and increased interest expenses led to a net loss during the period.