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By Chinwendu Obienyi
With the recently released earnings from beer companies in the Nigerian market, the brewery sector is set to face more challenges amid current FX scarcity with fears that the trend could these companies at the end of the year.
This is coming after investigations revealed that the net finances of three companies- Nigerian Breweries, Guinness Plc and International Breweries Plc rose to N114.7 billion as a result of FX transactions done from the parallel market.
Nigerians about N517.29 billion in six months running from January to June 2023 drinking beer.
According to the data filed with the Nigerian Exchange Limited (NGX), Nigerian Breweries Plc reported an 848.7 per cent year-on-year(y/y) surge in net finance charges to N96.22 billion, following a 10.7x jump in net loss on FX transactions (N85.26 billion | 88.6 per cent of finance costs), stemming from its foreign currency payables.
However, the company has expressed the intention to curtail the accumulation of foreign debt by sourcing more FX needs from the parallel market. Moreover, they aim to convert some short-term obligations into long-term debt.
Guinness Plc, on the other hand, recorded a higher net finance cost of N5.31 billion in H1 2023 (H1-22: N619.65 million), comprising a 435.9 per cent y/y growth in finance cost and a 120.8 per cent y/y increase in finance income. International Breweries’ net finance costs surged by 221.6 per cent y/y to N5.60 billion in Q2 2023 (Q2 2022: N1.74 billion), primarily driven by a substantial rise in finance costs (+253.3 per cent y/y). According to the company, the higher finance cost was mainly due to increased interest expenses on loans, which escalated by 343.5 per cent y/y.
Specifically, the brewer’s loans and borrowings grew by 85.9 per cent y/y to N360.76 billion in H1 2023, contributing to the higher finance costs incurred during the period.
Market operators who spoke to Daily Sun, said that the rise in finance cost was due to their inability to get FX to source their materials. They noted that the increase in excise duties along with other policies might hurt earnings.
It will be recalled that in June, business confidence fell as the removal of the fuel subsidy in Nigeria caused a sharp strengthening of price pressures, according to Stanbic IBTC Purchasing Manager Index (PMI) In turn, rates of expansion in output and new orders softened but remained marked nonetheless. Business confidence dipped to a near-record low.
While overall business conditions remained on a positive trajectory, firms faced a much stronger inflationary environment at the end of the second quarter of the year, linked to the removal of the fuel subsidy.
Furthermore, there are indications that exchange rate crises that trailed the foreign exchange market reforms in June 2023 may linger further as supply gap led to widened disparity of the Naira at the official and parallel market rate.
Head, Research at FSL Securities, Victor Chiazor, said, “Our FX reserves is around $33 billion while the net liquid position is far lower, which means that in real terms the CBN does not have the required FX liquidity to meet the current FX demand, not also forgetting the existing backlog of FX payments owed to businesses. Hence, it is why these companies are clearly struggling and this if it goes on longer, might affect their 2023 earnings”.
