Investors count losses as brewery sub-sector wobbles under high OpEx, FX volatility

The effect of the harsh operating environment has continued to impact negatively on the operations of the nation’s brewery industry, as prolonged inflation, unemployment and overall hardship impact negatively on consumer disposable income, resulting in shrinking demands for product.

The development, exacerbated by uncertainty, foreign exchange volatility and rising insecurity in the Northern part of the country has caused the bottomline of industry’s quoted companies to remain subdued with shrinking profit margin and poor returns, in the last few years, as investors continue to count their losses.

The harsh economic reality has severely impacted their performance, causing them to post huge losses in their 2023 operations.

Indeed, the brewery sector, hitherto, described as a creator of ernomous wealth and probably the largest employer of production labour, following the collapse of the textile industry had remained subdued with gloomy outlook.

Experts argued that the losses were majorly due to foreign exchange loans they took from their parent companies or international sources, in addition to the prolonged uncertainty in the nation’s business. They urged government to create enabling environment for businesses to thrive to enhance profitability of listed firms and dividend payout for investors.

A cursory look at the sectors financial performance showed that International Breweries Plc’s 2023 result showed N70.03 billion loss from N21.63 billion loss declared in 2022.

The beer manufacturing giant also announced N97.27 billion losses before tax in 2023 financial year from N266.84 billion losses before tax reported in 2022. The brewery company losses are on the backdrop of N55.98 billion net foreign exchange loss incurred in 2023. The company also posted a loss after tax of N52.1 billion in its First quarter 2024 performance, representing a 79 per cent decline from N10.7 billion net loss reported in Q1 2023.

Over a four year period, the firm’s share price which stood at N54 in 2020 had depreciated to N23.75 kobo as at the close of transactions on Monday, Friday, May 24, 2024.

International Breweries Plc in its unaudited results for 2023 recorded a pre-tax loss of N87.64 billion, marking a 226 per cent decline from the N26.84 billion loss before tax posted in full Year 2022.

In 2020, the firm’s share price stood at N9.20 kobo but at the close of transactions on Friday May 24, 2020, the price had depreciated to N3.65 kobo.

Research Analyst at Cowry Asset Management, said the brewery sector in Nigeria has witnessed an immense downturn due to the foreign exchange crisis that has bedeviled the economy on the back of incoherent foreign exchange policies.

According to him, the weakening consumer spending in Nigeria has further added more injuries to the sectors growth and earnings potential.

“We have seen price adjustments and price increases in the sector in recent times as a way to improve on the earnings strength of the sector. This has further led to higher unemployment levels and low capacity building for the nation’s economy.”

Vice President of Highcap Securities, David Adonri said the industry is facing almost the same challenge as all other manufacturing firms in Nigeria.

He pointed out that the cost profile of firms in the industry has increased beyond their elasticity of demand.

“If cost of their inputs decline and consumer’s disposable income improves, they will be back to profitability.”