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  • Business - Companies
  • Updated: May 11, 2020

Nigerian Breweries, Guinness, International Breweries Move From Frying Pan To Fire In Q1 2020

Nigerian Breweries, Guinness, International Breweries Move F

 

The beer industry in Nigeria continued from its unfortunate performance of Q4 2019, with the three market leaders, International Breweries, Nigerian Breweries and Guinness Nigeria suffering a nosedive, as their gross profit recorded a significant drop in the first quarter of 2020, while revenue of the first and third largest market shareholders also declined.

In the early period of this year, the top brewery companies in Nigeria had just survived the pummeling of Buharinomics (President Buhari's policies) and the hostile business environment experienced in Nigeria last year. They had dusted their hat with hope of capping a better performance this year - but little did the brewery companies know they were moving from frying pan to fire in 2020 Q1.

“The profit margin has reduced significantly. The overall pricing on alcohol has declined over the last four years. The inflationary trend has moved from 11 per cent to 12 per cent. There has been an increase in tariff. There is congestion at the ports, it costs the company over N700,000 to transport a container from the Apapa port to our factory at Ogba in Ikeja area of Lagos.” This was said by the Guinness managing director in Nigeria, Baker Magunda in 2019.

The above statement summarises the position of the brewery industry as of 2019, and that is not about to change considering the current economic fallout from the outbreak of coronavirus. While the pandemic had started in the last month (March) of Q1 2020, the three companies still recorded a sharp decline in gross profit for Q1 2020 compared to the corresponding period of 2019.

Nigerian Breweries, the largest market shareholder, posted its gross profit fell from N35 billion (Q1: 2019) to N34.8 billion (Q1: 2020). International Breweries also recorded the same fate, as its result seen by Allnews showed, its gross profit dropped from N8.9 billion (Q1: 2019) to N6.1 billion (Q1: 2020), while Guinness declined a bit from N11 billion (Q1: 2019) to N10.9 billion (Q1: 2020).

The changes in these companies' gross profit were determined by their level of revenue and cost of sales. For Nigerian Breweries, their cost of sales continued to rise, having spent N48.3 billion on the production of their products and delivery in Q1 2020, compared to the N48.2 billion of the corresponding period.

International Breweries cost of sales increased to N29.1 billion (Q1: 2020) compared to the N26.1 billion of Q1 2019, meanwhile, Guinness was able to reduce its cost of sales to N16.7 billion in Q1 2020 compared to the N22.5 billion spent in Q1 2019; hence the slight drop Guinness recorded in its gross profit.

The not so lucky brewery companies

While International Breweries escaped the pitfall in the revenue generation by a whisker, the likes of Nigerian Breweries and Guinness Nigeria (the third-largest market shareholder) were not so lucky in Q1 2020. Going through their company results, Allnews discovered that International Breweries recorded a sharp increase as it generated N35.3 billion in revenue compared to the N35 billion it grossed in the corresponding period.

This makes International Breweries the only alcoholic company to record revenue growth, while Nigerian Breweries and Guinness posted a decline in revenue. Nigerian Breweries recorded a sharp drop from N83.27 billion of Q1 last year, to N83.20 billion in Q1 2020. Also, Guinness posted a significant decline in its revenue, having generated N27.6 billion in Q1 2020, while it had gross N33.6 billion in Q1 last year.

More trouble for brewery companies

Nigeria's economy was negatively impacted by the coronavirus pandemic. The lockdown or restriction placed on movement is expected to eat into the brewery companies' revenue in Q2 2020. In the first month (April) of the second quarter, the lockdown affected clubs, relaxation spots or beer parlour, preventing consumption of products owned by these companies or reducing the consumption rate even more.

Although, as Nigeria begun to ease the lockdown in the second month of Q2, allowing businesses to return to production, relaxation spot is still restricted from operating or opening to the public. So the demand for their products will remain low.

Currently, there seems to be no market for new production and those already produced by the brewery companies before the lockdown. And considering the purchasing power of workers has dropped due to downsizing and salary cut, alcohol or brewer products will not be a priority for households and the self-employed.

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