Beer sales improve as brewers report higher profit in Q1

Bars and restaurants closure to combat the spread of the coronavirus pandemic meant Nigerians bought less beer in 2020. But the reopening of the Nigerian economy and more importantly, night clubs and event centers increased the consumption of one of the oldest and most widely consumed alcoholic drinks in the world.

This has consequently rubbed off on the performance of Nigerian beer makers, as the biggest industry players reported a profit increase of 34.33 percent in first quarter 2021.

From reporting a profit of N7.34 billion in the first quarter of 2020, the period Nigeria first announced a nationwide lockdown, Nigerian Breweries and Guinness Nigeria reported a combined profit of N9.86 billion in the three months ended March 2021.

“The reopening of the economy is increasing the demand for their products,” Ayodeji Ebo, head, retail investment, Chapel Hill Denham, said, adding that during the COVID-19 induced lockdown “nightclubs and bars were not allowed, and parties were restricted.”

Following the global practice, and as part of attempts to limit the spread of COVID-19, the deadly virus that was imported into Africa’s most populous nation on February 27, 2020, the Nigerian governments instituted lock-down measures and banned public gatherings of more than 50 persons.

This led to the closure of bars, nightclubs, pubs, and event centers, as well as recreational venues, a development that cost Nigerian hoteliers N19.77 billion losses last year.

“The ease on restrictions has helped drive volume growth for Nigerian brewers,” Ayorinde Akinloye, investment research analyst at United Capital, said.

Analysis of the brewers’ financial report to determine how they performed in the first three months of 2021 shows the industry players did better than the results released in the comparable period of 2020.

Nigerian Breweries’ net revenue for Q1 2021 jumped to N105.6 billion, 27 percent stronger than the figure posted in the same quarter of last year.

The biggest beer-maker in Nigeria recorded a 38.6 percent growth in profit before tax to N11.5 billion in Q1 2021, from N8.3 billion achieved in the first quarter of 2020. The brewer’s profit after tax climbed to N7.7 billion, 39.1 percent higher than the N5.5 billion recorded in the same period of 2020.

“Yes, I drink more beer now than I did during the lockdown, and the bear parlor in my neighborhood operates without fear of breaking the COVID-19 guidelines,” a beer lover and a loyal customer of one of Nigeria’s beer makers said.

A breakdown of the financial report of Guinness Nigeria, a subsidiary of Diageo plc, shows that the brewer posted revenue of N42.61 billion for the quarter ended March 31, 2021. This was 53.88 percent higher when compared with the N27.69 billion it reported in the comparable period of 2020.

The result shows that the brewer delivered a profit after tax of N2.16 billion, 17.39 percent more than the N1.84 billion reported the year before.

Also, International Breweries plc reported a 10.2 percent revenue increase in the first quarter of this year, from N34.35 billion in 2020 to N38.96 billion as of March 31, 2021.

Even though the company reported a loss of N2.58 billion in the first three months of this year, the loss was 54.34 percent better than the N5.65 billion loss reported the previous year.

“The Q1 performance is likely as a result of the price adjustment that was done around December of 2020,” Yinka Ademuwagun, investment management analyst at ValuAlliance Asset Mg, said.

According to BusinessDay findings, beer makers in March 2021 increased the prices of their products. For instance, on March 1, International Breweries increased theirs, followed by Nigerian Breweries on March 6 and Guinness Nigeria on March 29.

“They are moving away from the fear of competition and now becoming bolder by increasing prices to strengthen their bottom lines,” Abiola Gbemisola, consumer analyst at FBNQuest, said.

The high cost of production and inflationary environment are some of the reasons cited by analysts on why Nigeria’s top beer makers increased their product price to enable them improve profitability and financial performance, as against fighting for market share and brand awareness.

Between 2019 and 2021, beer makers have increased prices more than twice due to the high Excise Duty, a levy on the manufacture of locally produced goods, placed on them.

“Many of the brewers had the opportunity to raise prices, which have helped support revenue,” Akinloye said.

Another catalyst cited by analysts that have aided the growth performance enjoyed by Nigerian brewers is the fact that some of the industry players were able to significantly cut down on their debt by raising cheap funds from the Nigerian capital market in light of the record low-interest rate reported in 2020.

Ademuwagun believes 2021 would be a great year for most of the brewers because; their sales would be better off due to the relaxation of lockdown relative to last year, the volume will do better and the price that has been reviewed upward will impact their bottom line.

“This year is likely to be better for most of the payers compared to last year in terms of volume growth and price. The reopening of the economy is going to boost volume and price increment because revenue is a function of price and quantity,” Ademuwagun said.

But, how well the companies would be able to manage their resources and revenue to report a robust result remains a misery only the brewers can solve.