Heineken Nigeria Says Currency Devaluation Will Hurt Its Earnings

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Written by Kevin Mwanza

From Bloomberg via BDlive

Heineken’s Nigerian unit, the nation’s largest brewer, said a possible currency devaluation by the central bank would hurt the company’s earnings, suppressing profit ahead of next year’s elections.

The Central Bank of Nigeria may be forced to lower its currency peg if foreign reserves continue to dwindle, analysts at London-based Standard Chartered and Paarl, South African-based NKC Independent Economists wrote to clients last week.

Nigeria’s reserves have declined 13% this year to $37.9bn. Godwin Emefiele, who takes the post of Central Bank governor in June, said on March 26 that a devaluation of the naira would be “devastating” for the economy.

Nigerian Breweries imports, on average, about 40% of the raw ingredients it needs to produce beverages in Africa’s most populous nation, including its flagship Star lager, CEO Nicolaas Vervelde said in a March 31 interview. That percentage is higher for Heineken-branded beer, which requires a greater proportion of imported malted barley, he 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 governor Lamido Sanusi in February for “financial recklessness and misconduct,” allegations he denies. The currency was unchanged on Thursday at 163.95 naira/$ in Lagos, taking its decline for the year to about 2.2%.

Nigerian Breweries “will hedge a bit more” to counter the currency decline though the company is expecting an earnings boost later this year as politicians increase spending ahead of elections next year, said Mr Vervelde. Consumption of beer tends to track rising disposable incomes, he said.

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