N4bn loss: Guinness Nigeria faces more challenges
The once cheerful faces of shareholders of Guinness Nigeria Plc has suddenly turned gloomy as their company’s fortunes continues to fall into a never-ending hole. Unable to ride on the back of an increasingly weaker consumer market for alcohol, the company found its 2016 financial statement dipped in red ink as it posted a towering half year loss of N4.6billion, despite a 19.4 per cent growth in sales. The company’s stock market performance has not fared any better as it lost -73 per cent of its market value in three years sliding from N253 in 2015 to N173 in January 2017.
Half year unaudited results for the company for the six-months ended December 31, 2017 showed turnover rise to N59.49 billion in December 2016 compared to N49.84 billion posted in the corresponding period of 2015.
Cost of sales rose by 55 per cent from N28.44 billion to N43.94 billion, this was the result of a severe rise in the cost of inputs that reflected a massive devaluation of the naira in the last one year. The huge rise in cost of goods as a proportion of sales choked life out of the company’s net sales and sent profit to a deathly dungeon. This was reflected in the staggering pre-tax loss of about N5billion by the middle of 2016 compared to a pre-tax profit of N1.65 billion the previous year. The brewers net loss after tax, rose to a disastrous N4.67 billion compared to a net profit of N1.17 billion in the comparable period of 2015.
Managing director, Guinness Nigeria Plc, Mr. Peter Ndegwa, who tried to assuage the concerns of stakeholders of the company, noted that there were many bright spots for the company going forward but a sorely challenging economic environment and crippling finance charges were leading to severe corporate bloodletting. The company’s net sales growth was being swallowed by escalating operating expenses and higher cost of working capital finance, twin towers that were squeezing gross margins. He noted that to push back against the worrisome headwinds the company had diversified its product portfolio to win greater market share in beverages beyond the larger crowd.
“We now have both International Premium Spirits (IPS) and locally manufactured mainstream spirits within our portfolio and these contributed to revenue growth for the half year. Our accessible beer brands also continue to grow strongly. Our productivity agenda continues to gain momentum enabling us to keep our administrative and distribution costs under control while optimizing our investments to support our brands,” Ndegwa said.
He said the negative bottom-line was caused by the high input costs driven partly by foreign exchange and foreign exchange impact on financing costs. Udegwa stated that the unrealised foreign exchange losses during the half year were responsible for the 166 per cent growth in net finance cost.
However, chairman, board of directors, Guinness Nigeria Plc, Mr. Babatunde Savage, expressed optimism about company’s future notwithstanding the prevailing challenging operating environment.
“We are confident that the steps we are taking to steer the business through these difficult times – including a comprehensive review of our capital structure, the expansion of our brand portfolio and our continued focus on reducing operating costs, will sustain the momentum we have in top-line growth and bottom line recovery,” Savage said.
While the company have blamed the shrinking economy, which saw a sharp fall in the price of crude from $114 per barrel in June 2014 to $32 before the end of 2015 as a principal cause of lower domestic demand for its products, independent analysts claim that part of the company’s problem is a palpable loss in market share due to a growing bargain basement market for beer. Premium beer brands are increasingly losing space on the average consumers shopping list as cheaper brands create greater spending flexibility in the face of a biting recession.
The breweries sector has been deeply challenged since 2013 and is suffering a decline.
This many believe is hurting sales volume and squeezing margins for all the operators.
Low consumer spending has also been fingered for its challenges. Among the troubles of the industry is rising consumer prices and growing volumes of unpaid workers’ salaries in public and private sectors, in addition the increasing unemployment. Stiffer competition in the sector and companies seem to increase the cost of sales now than ever before. Interestingly, the company has rolled out strategies to recapitalise.
Shareholders of Guinness Nigeria Plc had last two weeks endorsed the proposed plan by the company to raise N40 billion through a rights issue. They have also authorised the directors to apply any outstanding convertible loan, shareholders loan toward payment for any rights or shares.
However, there are subtle mixed feelings the company may have to engage in more strategic and aggressive marketing to convince shareholders who are already pale for the huge losses they incurred from its disappointing performance recently.
Market observers believe that the company must tinker with the pricing of its shares and incentivise shareholders so they can pick up their rights.
Some advice the company’s rights issue should be priced at an attractive price of about N40.00 a share to woo existing shareholders who have alternative investment options in bonds and treasury bills with better returns.
Analysts have said the brewer has not performed well in recent times, fingering insecurity in the country as part of its challenges.
‘’The results have not been good. Weak demand for its products is affecting its bottom-line. Its big market in the North East which has been affected adversely by the nefarious activities of Boko Haram’’, Said a Lagos based analyst, Managing Director, High Cap Securities Limited, David Adonri.
Similarly, Managing Director of Crane Securities Limited, Mr Mike Ezeh, told Business Hallmark that it is difficult for companies to perform magic in an economy that is experiencing recession.
‘’The company has been posting loses. My fear is how their rights issue will perform. The price has to be appropriately priced before shareholders. Information drives the market, so if there is a good information it affects any company’s shares positively and negatively if it otherwise’’, he said.
Agusto & Co., Research, Credit Ratings, Credit Risk Management had rated Guinness Nigeria Plc a in 2015 as having inadequate working capital, adding that stiff competition for products in the value segments and Sub-optimal distribution network in rural areas are also some its challenges.
In fact, there is a consensus that Guinness Nigeria has failed to re-event itself like its competitor Nigerian Breweries Plc which did strategic acquisitions which has helped it solidify and expand its market base.
Research revealed that the major factors driving the change in beer consumers’ drinking habit include rising cost of living and decrease in purchasing power of consumers which has had an industry-wide impact on the beer market.
Premium beer brands bleeding from the economic squeeze include Guinness Nigeria Plc’s Guinness Extra Stout and Harp Larger Beer, Nigeria Breweries’ Star, and Gulder. While they groan, brands like Goldberg(NB) , 33(NB), Hero(Sabmiller), Trophy (Sabmiller), Life(NB), Champion, Turbo King(Consolidated Breweries) and Wilfort Dark Ale(Sona Breweries), are smiling to the banks.