Lagos - A possible currency devaluation by Nigeria’s central bank would hurt earnings at Heineken’s unit in the country, suppressing profit ahead of next year’s elections, the country’s largest brewer said this week.
The Central Bank of Nigeria could be forced to lower its currency peg if foreign reserves continued to dwindle, analysts at London-based Standard Chartered and NKC Independent Economists in South Africa told clients last week.
Nigeria’s reserves have declined 13 percent this year to $37.9 billion (R402bn). Godwin Emefiele, who takes the post of central bank governor in June, said last week that a devaluation of the naira would be “devastating” for the economy.
Nigerian Breweries, in which Heineken owns 38 percent, imported an average of about 40 percent of the raw ingredients it needed to produce beverages, including its flagship Star lager, chief executive Nicolaas Vervelde said in an interview on Monday at its headquarters in Lagos.
That percentage was higher for Heineken-branded beer, which required a greater proportion of imported malted barley, Vervelde said.
“A devaluation of the naira would certainly have some effect,” he said. “Things like hops you can’t get locally and every beer up to now needs hops.”
The naira weakened to an all-time low against the dollar after President Goodluck Jonathan suspended Central Bank of Nigeria governor Lamido Sanusi in February for “financial recklessness and misconduct”, allegations that he denies.
The local currency was little changed yesterday at 163.95 naira to the dollar, taking its decline for the year to about 2.2 percent.
Nigerian Breweries “will hedge a bit more” to counter the currency decline though the company was expecting an earnings boost later this year as politicians increased spending ahead of elections next year, Vervelde noted.
Consumption of beer tended to track rising disposable incomes, he said.
The Nigerian government increased its budget about 17 percent before the last presidential elections in 2011 to fund campaigning. Nigeria will hold elections on February 14 next year, when the ruling People’s Democratic Party may face its toughest electoral challenge since it came to power in 1999. The party has suffered a series of defections to the opposition All Progressives Congress, which promises to create jobs and fight corruption.
“What we hope is what we’ve seen in the past,” said Vervelde. “That also this year there’s pre-election spend and that it flows through in 2015 and with that basically that the market accelerates in terms of growth.”
The shares of Nigerian Breweries, the second-largest company listed on the Lagos bourse by market capitalisation, have fallen 11 percent this year, compared with a 6.9 percent decline of the Nigerian Stock Exchange all share index. The stock fell 0.5 percent to 150.25 naira (R9.56) in Lagos on Wednesday, valuing the company at 1.14 trillion naira.
Full-year revenue advanced 6.3 percent to 268.6 billion naira last year, while net income rose 13 percent to 43 billion naira.
Heineken, the world’s third-largest brewer, said in February that sales would increase this year after reporting a decline in profit last year because of falling consumption in central and eastern Europe.
The Amsterdam-based company said volume growth in developing markets including Africa would offset weaker trading in its main markets.
Vervelde said an expanding economy and population growth meant Nigeria remained a promising market.
The International Monetary Fund has predicted Nigeria’s economy would probably expand 7.4 percent this year.
Nigerian Breweries said business in the north was suffering amid an Islamist insurgency that Amnesty International estimates has killed 1 500 people this year. There is a state of emergency in three states.
While the company sold more non-alcoholic malts and soft drinks last year, Vervelde said alcoholic beverage trading in the conflict- affected region had been “difficult”.
“There is very little activity going on there,” he said. “People are more reluctant to go out, the trade is reluctant to invest in stock.” – Bloomberg