Brewers, NB Plc and International Breweries grapple material costs of N172 billion on inflation, weak naira

Nigerian Breweries Plc and International Breweries spent a whopping sum of N172.268 billion on raw materials during the half year ended June 30, 2022, a 21.51% increment from N141.776 billion recorded during the comparable period of 2021.

This represents 74.85% of the total cost of sales of N230.145 billion recorded by the brewery firms during the period under review.

This is contained in the unaudited half-year results of both companies tracked by Nairametrics. Some of these cost pressures were due to the depreciation of the Naira while others were due to macro-economic inflationary pressure, especially in the domestic market where average inflation has hit a 17-year high.

The forex impact in terms of availability, accessibility and exchange rate was huge and significantly affected businesses, as more than 60% of the raw materials are imported. This further weakened the working capital base. The management of most manufacturing companies had to devise some ingenious ways to stay afloat.

Following high-cost operations occasioned by the inflationary pressure, these companies reported a cumulative cost of sales of N230.145 billion during the first quarter of 2022 as against N199.103 billion reported in 2021.

Breakdown of the analysis

  • A cursory look at the financials showed that Nigerian Breweries consumed raw materials valued at N112.112 billion during the half year 2022 as against N92.899 billion in 2021 representing a growth of 21%. According to data tracked by Nairametrics, the Nigerian Breweries results revealed that Profit After Tax for the six-month period under review rose by 142.6%, from N7.725 billion to N18.743 billion. Cost of sales grew by 17.19% to N155.349 billion from N132.560 billion.
  • International Breweries Plc’s material costs stood at N60.156 billion in H1 2022, representing an increase of 23.07% over N48.877 billion reported in H1 2021. Profit after tax was N336 million in 2022 as against a loss of N13.887 billion in 2021while cost of sales stood at N74.796 billion in half year of 2022 from N66.543 billion in 2021, representing a growth of 12.40%.

What the company is saying

  • According to a statement signed by NB Plc’s company secretary/Legal Director, Uaboi Agbebaku, the company’s profit rise was driven mainly by top-line growth resulting from its pricing strategy and better mix.
  • Further analysis of the results revealed that the Cost of Sales increased by 18.3%, from N131.34 billion in H1, 2021 to N155.35 billion in 2022 in the same corresponding period.
  • Marketing, Distribution, and Administrative expenses also rose by 44.6%, from N58.42 billion in H1, 2021 to N84.45 billion in H1, 2022, driven by the increase in commercial activities post-COVID, rising diesel prices and higher wages arising from collective labour agreements
  • Uaboi also noted that although interest expenses were lower, the net finance cost was higher due to foreign exchange losses arising from a higher cost of meeting foreign obligations to overseas partners.
  • International Breweries stated in its half year result that revenue stood at N111.40 billion, compared to N81.96 billion earned in H1 2021, a 35.92% YoY growth.
  • Gross Profit stood at N36.60 billion, a 137.43% increase from the N15.41 billion profit reported in H1 2021. Its gross profit margin improved from 32.86% to 18.81%.
  • Administrative expenses were N28.72 billion, a 41.89% YoY increase from the N20.24 billion it spent in H1 2021. The increase in administrative expenses was primarily due to the increase in cost of materials consumed and allocated to overheads.
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