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Heineken Nigerian Unit Shuts Two Plants as Forex Costs Bite

Heineken Nigerian Unit Shuts Two Plants as Forex Costs Bite
SAN ANSELMO, CALIFORNIA - JULY 31: In this photo illustration, bottles of Heineken beer are displayed on July 31, 2023 in San Anselmo, California. Dutch beer maker Heineken, the worlds second-largest brewer by volume, cut its 2023 profit growth forecast following the economic slowdown in Vietnam that cut its first-half earnings. (Photo illustration by Justin Sullivan/Getty Images)

Heineken NV’s Nigerian unit temporarily shut two factories in the West African nation, plagued by the depreciation of the currency that increased costs and impaired the purchasing power of consumers. 

Nigerian Breweries Plc has nine plants in the country and is “providing strong support and severance packages to all affected,” the company said in a filing. The move will help the company reverse a 15% capacity expansion over the past decade and reduce costs, Managing Director Hans Essaadi said in an interview in Lagos on Wednesday.

The maker of Star lager and Legend Extra Stout is joining multinational companies including Procter & Gamble Co., GSK Plc and Bayer AG that have been forced to either revamp their business or exit the country. The naira’s weakness and the resulting surge in prices has severely eroded the ability of Nigerians to buy consumer goods.

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Nigerian Breweries, which in February said that it was facing its worst downturn in history, is reorganizing its operations after running into a loss of 106 billion naira ($94 million) in 2023.

The loss is due to “a combination of challenging economic factors ranging from heightened operational costs, continued pressure on consumer disposable income, escalating inflation rates, FX volatility, among others,” the company said.

The closure of the two breweries is part of a business recovery plan intended to return the company to profitability, Essaadi said.

The brewer has announced plans to raise 600 billion naira in fresh capital from existing shareholders to settle foreign-currency denominated obligations. This was after a foreign-exchange loss of 153 billion naira eroded shareholders equity.

Nigeria’s naira lost at least 70% of its value from June until mid-March when it started retracing its losses, appreciating 40% since then to become the world’s best-performing currency.

Still, the naira is at least 50% weaker than a year earlier and this has resulted in a jump in the local currency equivalent of the dollar liabilities of some of the nation’s biggest firms, plunging them into losses that eroded their capital.

Capital Erosion | Companies report negative equity as naira devaluation triggers losses

Nestle Nigeria Plc, a unit of the world’s biggest food company, saw its finance costs jump more than 1,000%, resulting in a loss of 79 billion naira. MTN Nigeria Communications Plc, the nation’s biggest wireless firm, recorded a foreign-exchange loss of 740.4 billion naira.

“The tough business landscape characterized by double-digit inflation rates, naira devaluation, FX challenges and diminished consumer spend has taken its toll on many businesses, including ours,” Essaadi said in the statement. “This is why we have taken the decision to further consolidate our business operations for efficient cost management.”

The affected factories are the Kakuri Brewery in Nigeria’s northern Kaduna State and Awo-Omamma Brewery in southeast Imo State, Finance Director Ben Wessels Boer told reporters in Lagos.

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