Nigeria’s top brewers reported a combined staggering loss before tax of N266.6 billion in the calendar year of 2023, marking a disastrous year for investors in these companies.
The loss levels mean the companies will neither pay dividends nor taxes to shareholders and the government respectively.
This is based on data obtained from the financial statements of the companies under review. Our analysis focused on the loss before taxes, as the three companies received tax credits, reducing the magnitude of the loss when calculating their loss after tax.
Staggering losses
The top three beer makers in Nigeria include Nigerian Breweries, International Breweries, and Guinness Nigeria Plc. All three companies reported massive losses in a year marked by rising inflation and exchange rate depreciation.
- Nigerian Breweries, the nation’s largest brewer, reported a loss before tax of N145.2 billion, the largest loss by size in its corporate history. The size of the loss will result in a tax credit of N38.9 billion for the company, bringing its loss after tax to N106.3 billion.
- Guinness Nigeria Plc, the nation’s second-largest brewer, posted a loss of N4.4 billion for the 6 months ended December 2023.
- Guinness, which has its fiscal year-end on June 30th, reported a total loss of N33.8 billion for all four quarters of 2023. This significant loss was largely driven by a N32 billion loss recorded in the quarter ending June 2023.
- International Breweries, the country’s third-largest brewer by sales, recorded a loss before tax of N87.6 billion, marking the largest loss in its corporate history. International Breweries has reported losses before taxes every year since 2017, totaling a staggering N206.6 billion.
Currency depreciation to blame
A common factor in all these losses is the substantial exchange rate loss incurred by the companies in the second half of the year.
- For instance, Nigerian Breweries recorded a foreign exchange loss of N153.3 billion despite reporting an operating profit (without finance cost) of N43.9 billion.
- Guinness reported over N20 billion in foreign exchange losses in the 6 months ending December 2023, primarily from its foreign currency obligations.
In June 2023, Nigeria’s central bank introduced the unified exchange rate system in an attempt to reset Nigeria’s exchange rate policy.
- However, this has led to significant foreign exchange losses for manufacturing companies, especially those with foreign currency-denominated loans.
- At the beginning of Nigeria’s foreign currency challenges in 2021, most foreign-owned manufacturing companies like Nigerian Breweries (Heineken), Guinness (Diageo), and International Breweries (AB InBev) took out intercompany loans from their parent companies to address their forex supply shortages.
- However, this strategy has backfired, with the exchange rate falling by over 50% since last June.
In their press statement reflecting on the results, Nigeria Breweries stated that the company faced difficulty due to high inflation and foreign exchange scarcity.
- “High double-digit inflation rates (with food inflation at more than 30%), removal of subsidy on premium motor spirit (fuel), devaluation of the naira, and foreign exchange scarcity further exacerbated the already difficult environment for the populace and businesses.”
Impact of the losses
The size of the losses means the companies will not be able to pay dividends to their shareholders and neither will they be able to pay taxes.
- Nigeria Brewries retained loss is N26.2 billion which means shareholders cannot pay dividends in 2024 and possibly in 2025.
- International Breweries’ history of losses takes its retained earnings to an astonishing N117.7 billion.
- Guinness is the only Brewery that still has retained earnings based on its financial year end of June 2024. However, at just N3.1 billion it is likely to swing to losses by the end of June 2024.
More Headwinds: Nairametrics analysis anticipates further foreign exchange losses in 2024 if the exchange rate remains at current levels. Most of the results published are for their 2023 year-end for December 2023 when the official exchange rate was N907/$1. It is currently over N1500/$1 which is a further 40% depreciation.
