NGX | Brewery Sector Update : Sipping for Value - May 2023

    The global beer market sustained its resilient performance in 2022, despite the negative spill-overs from the multiple macroeconomic headwinds that impacted input costs and supply chain in the year. Based on an estimate by Statista, the global beer market expanded 18.2% y/y in 2022 to $643.4bn – the fastest in the last 5 years. This was mainly driven by an estimated 6.4% y/y increase in sales vol- ume to about 964.9 million hectolitres (mhl) and price increases on most brands’ product portfolios in reflection of the surge in the global inflation rate in the year. However, the knock-on effect of the war in Eastern Europe – the spike in raw materials, logistics, and operating costs – drove a sizeable 28.0% y/y jump in the average cost of beer production according to an estimate by Israel-based Social Invest- ment Platform – eToro. Consequently, leading global brands such as AB-InBev and Heineken group reported a decline of 0.1ppt and 19.4% in EBIT margin and PAT, respectively.

    Looking ahead, the global beer market is estimated to expand 8.5% y/y in 2023 to $698.1bn. This projection, in part, is hinged on the expectation of a mild reduction in the prices of key production inputs given the WTO’s upbeat sentiment on global trade volume in 2023 (estimated expansion rate: 3.4%) relative to 2022 (actual expansion rate: 3.0%). On the other hand, improvement in households pur- chasing power due to the expectation of modest easing in global in- flation pressure and the resilience of the labour market in major economies are expected to boost the demand side.

    On the domestic scene, industry revenue expanded 25.1% y/y in 2022 to ₦976.1bn – a new record level in nominal terms. The reve- nue jump, on the one hand, was driven by the sizeable upward price review – the average price of sampled alcohol and non-alcohol prod- uct categories was up by a minimum of 25.0% y/y. On the other hand, the top-line performance was supported by an estimated 2.1% y/y expansion in sales volume to about 20.6mhl due to sustained economic recovery, and the pick-up in social activities in Q4:2022 (industry revenue was strongest in this quarter). Also, despite the multiple pressure points on input prices in 2022, the industry Cost of Goods Sold (COGS) rose less steeply by 22.5% y/y compared to 33.3% in 2021.

    Our assessment of the industry data revealed that the modest spike in COGS amid multiple macroeconomic headwinds was in part, aided by the increased share of local contents (raw materials and services) in production and investment in backward integration projects. Note- worthy, NB and GUINNESS sourced over 70.0% of their raw materi- als and services locally in 2022. On the other hand, cost-hedging strategies such as prepayments for imported raw materials and packaging items (NB: ₦3.0bn and GUINNESS: ₦3.3bn) and gains from scale economy (volume sold rose by about 2.1% y/y) helped in mitigating pressure on COGS. On the back of this development, in- dustry cost-to-revenue ratio fell 141bps y/y to 66.2% (lowest since 62.1% in 2018), aiding gross profit margin to a new five-year high of 33.8%.


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    Afrinvest (West Africa) Limited is a leading independent investment banking firm with a focus on West Africa and active in four principal areas: investment banking, securities trading, asset management, and investment research. Afrinvest owns two operating subsidiaries namely: • Afrinvest Securities Limited (ASL) which is a broker-dealer and a dealing member of the Nigerian Stock Exchange (“NSE”): and • Afrinvest Asset Management Limited (AAML) which is licensed as a portfolio manager and is the Fund Manager of two mutual funds listed on the NSE, the Nigerian International Debt Fund (NIDF) and the Afrinvest Equity Fund (AEF).
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