Nigeria’s leading beer manufacturers continue to grapple with the effects of the country’s currency devaluation, which has caused significant financial setbacks despite recent stabilization in the Naira.
In the wake of a 70% depreciation of the Naira over the past year, major players in Nigeria’s brewing sector have seen their bottom lines severely impacted by escalating costs of imported raw materials and a sharp decline in gross margins. Nigerian Breweries, Guinness Nigeria, and International Breweries have all reported losses for fiscal year 2023 and the first half of 2024, with the Naira’s volatility continuing to weigh heavily on their financial performance.
Nigerian Breweries, a subsidiary of Heineken, posted a staggering net loss of ₦105.8 billion in FY 2023, primarily driven by an FX revaluation loss of ₦153.3 billion. Similarly, Guinness Nigeria recorded a ₦54.8 billion net loss in its financial year ending June 30, 2024, with a notable ₦89.4 billion FX revaluation loss. This was compounded by an increase in its loan to Diageo International, largely due to the devaluation of the Naira.
Despite some stabilization in the exchange rate (currently around ₦1,650/$), Nigerian Breweries and Guinness Nigeria are still feeling the sting of the Naira’s volatility, as demonstrated by their Q3 2024 results. Nigerian Breweries reported a ₦149.5 billion net loss for the nine months ended September 30, 2024, with the group incurring a ₦64.3 billion loss in Q3 alone. Similarly, Guinness Nigeria recorded a ₦12.2 billion net loss for Q3 2024, a sharp contrast to the ₦2.6 billion net profit it posted in the same quarter of the previous year.
Rising Costs and Diminishing Margins
Both companies continue to face the dual pressures of inflation and the Naira’s volatility, which have driven up raw material costs and eroded profit margins. Nigerian Breweries’ gross margin fell to 30% in 9M 2024, down from 38% in the same period of 2023, reflecting the increased cost of imported inputs. Guinness Nigeria’s gross margin for Q1 2025 also plummeted to 11%, compared to 30% in Q1 2024.
Guinness Nigeria’s cost of sales surged by 170% year-on-year in one quarter, reaching ₦111.6 billion in Q2 2024, up from ₦41.4 billion in the same quarter the previous year. Similarly, Nigerian Breweries saw a 130% year-on-year increase in raw material costs, reaching ₦407.2 billion in 9M 2024, compared to ₦177.4 billion in 2023.
These rising costs have driven the companies into the red. Nigerian Breweries, despite posting an operating profit of ₦29 billion during the nine months, saw its pre-tax loss balloon to ₦203 billion due to an FX revaluation loss of ₦160.5 billion and interest expenses of ₦71 billion. Likewise, Guinness Nigeria’s pre-tax loss reached ₦16 billion, with FX losses contributing to its negative earnings performance.
The Profit Outlier: Champion Breweries
While the broader industry has struggled, Champion Breweries, a smaller player in the sector, emerged as a rare profit-maker. The company posted a net profit of ₦370.6 million in FY 2023 and ₦21.5 million in 9M 2024, buoyed by more effective hedging strategies against rising costs.
Champion Breweries’ Managing Director, Adoga Inalegwu, explained that the company had hedged key input materials like sorghum for 2023, securing favorable pricing and insulating itself from some of the worst effects of the Naira’s depreciation. “We entered into a supply arrangement in February 2023 to ensure that sorghum, our main input, was covered for the rest of the year,” Inalegwu said.
A supply chain expert noted that companies with proactive risk management strategies, such as pre-ordering raw materials or leveraging insurance to protect against FX losses, were better positioned to weather the storm. However, the scale of larger brewers like Nigerian Breweries and Guinness Nigeria means that such strategies often require substantial access to foreign exchange and liquidity, both of which were in short supply in 2023.
Looking Ahead
As the Naira shows some signs of recovery, the brewing sector will need to adapt its operational and financial strategies to cope with persistent inflation and currency volatility. While Champion Breweries’ profitability highlights the importance of hedging and supply chain management, larger companies may need to explore alternative strategies, including seeking more stable access to foreign exchange or diversifying their cost base, in order to navigate Nigeria’s challenging economic environment.
With the Nigerian economy still in a state of flux, brewers and other manufacturers will likely continue to face substantial risks related to the currency and inflation, which could influence their bottom lines well into 2025.