By Okey Onyenweaku |
It is clearly not the best of times for Guinness Nigeria Plc and the prognosis about its performance is simply not looking as good as its long-standing shareholders would have wanted.
Indeed, so worrying is the performance of the star brewer that many a subscriber to the stock of Guinness Nigeria Plc at the Nigerian Stock Exchange has presently been caught in a bind: to stay or to go.
This is even as the fortunes of the once most regarded stock has continued to sour even deeper than ever before given the discouraging performance of the Giant Brewer even in the market place as its latest string of results disclose. The most recent of the depressing results which was made public on the NSE website recently reveals a steep loss of –(N12.578 billion) in 2020, representing a 329 per cent profit slump when contrasted with the N5.483billion profit performance the same firm had garnered in the corresponding period in 2019.
Accentuating the string of negative outcomes, the audited results also showed that net assets dipped -18 per cent while earnings per share also closed negative at – (572).
Not done, total equity declined -18 per cent from N89.060 billion in 2019 to N73.088 billion in 2020. With this performance, it did not come as a surprise that no dividend was declared, given also that revenues had dipped -21 per cent from N131.498billion in 2019 to N104.376 billion in 2020.
To put a handle on specific elements of the challenge, a critical assessment of the company’s scorecard shows that inventories also increased higher by 4.9 per cent from N25.180 billion in 2019 to N26.426billion in 2020.
Equally, Guinness appears to be finding itself in a debt trap as its loan burden surged 323 percent with the brewer ramping up on its borrowing portfolio, with debts rising from N5.2billion in 2019 to N22.800billion in 2020.
Also on its neck is how to manage its contentious $23 million debt given that lack of liquidity in the local foreign-exchange market has made it difficult to refinance same, as Stanley Njoroge, its finance and strategy director, revealed in the course of an investor call session in Lagos recently.
“We will want to refinance it but there is no foreign currency in the market at the moment,” he had said.
The second largest brewer in the country is therefore planning to roll over the loan which matures in May next year as a result, but is yet to decide whether to keep it as a dollar debt or convert it to a local-currency loan. The brewer’s outstanding debt rose 16% to 23.2 billion naira ($60 million) as of June, while finance costs also rose 74% to a new figure of 4.5 billion naira.
Also notable is the fact that the company has equally disclosed that on its present standing, over 99 per cent of its revenues came from Nigeria, meaning that the fraction of its sales income from exports is clearly not tangential.
Fighting monsters everywhere, the company was however able to exercise some degree of care with its expenses which came down 4.5 per cent. This could however not be replicated in the arena of total personnel expenses as the numbers there rose by -18 per cent; from N8.769 billion in 2019 to N10.428billion in 2020.
At this rate then, it is most understandable that investors do not seem impressed with the performance of the company from which they had expected to enjoy reasonable returns. This is more so as many of the investors had invested hugely in the company for very many years, which they had trusted to seemingly, have strong fundamentals and can turn their investments into good fortunes.
However, it is also to be noted that the company’s disappointing run is coming at a time when the operating environment is difficult to navigate even by the seemingly best performers not only in the breweries industries but also in other sectors of the economy.
In addition, there is also the double barrel set back effect of the Coronavirus pandemic and the wobbling price of crude oil, the main stay of Nigeria’s economy.
The pandemic forced the world to shut down economic activities for some five weeks and counting and distorted productive activities, supply chains and sales in Nigeria and other places.
In fact, if it is of any comfort, Guinness Nigeria’s major competitor, Nigerian Breweries Plc, also posted a decline result in its half year 2020 score cards. However, investors believe that being in the red region by about –N17billion and recording some 57 per cent decline are two worlds apart.
Comparably, the Nigerian Breweries Plc in the half year recorded a revenue of N152 billion, down from N170.2 billion in the corresponding period of 2019.
Its Profit before tax also fell 57 per cent from N19.4 billion to N8.3 billion, while profit after tax (PAT) declined from N13.3 billion to N5.6 billion in 2020.
In particular, Nigerian Breweries blamed its poor performance on increase in Excise Duty, a rise in inflation, an increase in VAT from 5.0 per cent to 7.5 per cent and the impact of the Coronavirus (Covid-19) pandemic on businesses worldwide.
‘’Company’s revenue is derived from sale of similar products with similar risks and returns. Additionally, there is no identifiable component of the business with up to 10% of the total revenue, the absolute measure of profit or loss and its assets. Thus, further segment information has not been presented’’, said the company.
Business Hallmark research revealed that the dominant trend in corporate Nigeria especially in this down period is not very pleasant. Not even the banks which were thought to be always bullish could give a good account of themselves in the prevailing circumstances. A few days ago, even top ranking banks such as GT Bank Plc and UBA Plc recorded decline in their profit.
For instance, while GT Bank’s profit before tax declined by 5.25 per cent from N115.79 billion in H1’19 to N109.71 in H1’20, UBA’s profit before tax eased 14.5 per cent from N70.3billion in 2019 to N57.1billion in 2020. Union Bank Plc also posted 9 per cent decline in profit.
Market analysts fear that the poor performance trend is likely to continue in the midst of a sliding economy that has been projected to go into recession sooner or later.
In fact, putting a philosophical spin on the challenge, Guinness Nigeria boasted of achieving one of the most important things. The company said its priority during this period “remains ensuring the health, safety and welfare of employees, customers and partners.”
Beyond comforting talk however, low consumer spending has also been fingered for the firm’s challenges. Among the troubles besetting the industry is the rising consumer prices scourge and growing volumes of unpaid workers’ salaries in the public and private sectors, in addition to increasing unemployment. Stiffer competition in the sector and amidst companies also seems to increase the cost of sales now than ever before. Recently, Islamist police in Adamawa reportedly destroyed many hundreds of bottles of beer, saying it was against their belief to serve alcoholic during social events. These factors and escalating insecurity which makes it difficult to move products to certain parts of Nigeria is also counted as significantly challenging the beer industry, of which numbers Guinness Nigeria.
Another significant factor is that the CBN has devalued the Naira twice this year with the official exchange rate losing 24.3% to settle at N379.0/US$ from N305.0/US$ previously. At the I&E window, the naira closed at N385.67/US$ which represents a 5.8% YTD depreciation from N364.51/US$ as at 31 Dec 2019.
Indeed, it is important to point out that the underlying macroeconomic challenges that were faced prior to the pandemic are exacerbated by the current FX scarcity.
Nigeria’s economic managers have reacted in the same way they did to previous FX crises; ration available FX and source for new FX flows from external borrowings. But more recently, the Central Bank has moved to make adjustments to the exchange rate in addition to taking steps to unify exchange rates.
Foreign investors have not been able to repatriate capital in the face of the heightened concerns over the macroeconomic environment and uncertain policy stance. This has partly led to a pile-up of FX backlog which is estimated between US$5bn – US$7bn’’. —FSDH Group research
To be sure, Guinness Nigeria Plc had earlier, informed the public in a statement to the Nigerian Stock Exchange, about the material circumstances that will impact its full-year financial results for 2020.
“The adverse impact of the sharp contraction in economic activities and the knock-on effect of the COVID-19 lockdown took a toll on the on-trade segment of the business across all our markets. Production and revenues have thus been negatively affected,” the company said in a statement posted on the Nigerian Stock Exchange.
“Guinness Nigeria carried out a comprehensive review of its asset base and made a strategic decision to impair a certain category of assets, which were generating suboptimal returns. This is in line with the company’s long-term strategy of delivering value to shareholders.
“Due to a combination of the impact of COVID-19 and the asset impairment, we expect the profitability of the Company for the Financial Year to 30th June 2020 to be impacted. The Company’s balance sheet however remains strong, and this gives the Board the confidence that the Company has the right resources to continue to deliver the strategy.”
Meanwhile, its Q3 2020 results for the period ended March 31st, 2020 which saw revenue decline -5.3% to N96 billion from N101 billion the previous quarter is already an indicator that the annual performance may not after all be impressive.
“In the 3 months ended 31 March 2020, Guinness Nigeria’s revenue declined 5% compared to same period last year on the back of volume decline driven by the price increases that we took in the quarter and the initial impact of COVID-19. Revenue for the year to date continues to be impacted by excise duty increases which prior to February were not covered by price. We remain confident however, that the underlying performance of our main strategic focus brands/categories – Guinness, Malta Guinness, RTDs and spirits – remains solid,” Mr. Baker Magunda, Managing Director/CEO, Guinness Nigeria Plc had said of the result.
“I am however pleased by the work we are doing on productivity. Despite Nigeria’s inflation rate at 12%, our cost of sales declined at a faster rate of 7% compared to revenue and therefore improving our year to date gross margin to 32%.
Similar productivity initiatives mean that the increases in distribution expenses by 2% and the administration expenses by 7% are still below inflation. We also boosted our marketing spend by 6% to support our brands. The operating profit declined by N2.1bn. The recent depreciation of the Naira drove the increase in finance costs by N2.1b year on year, impacting profit delivery”.
“Our business was impacted in the last half of March by the COVID-19 outbreak.
This has also proven to be an economic crisis significantly impacting most businesses including ours, as much as it is a health crisis. As a proud business with 70 years heritage here, we stand with Nigeria by aligning with the efforts of the Federal and State governments to stop spread the virus across the country. We have made donations of hand sanitisers as well as provided non-alcoholic drinks to the Nigeria Center for Disease Control (NCDC), the Federal Ministry of Humanitarian Affairs, Disaster Management and Social Development and several states in Nigeria. These materials are to support frontline health workers and security officers as they work tirelessly to curtail the spread of the virus, as well as to provide relief to vulnerable groups in various communities in Nigeria”.
The company’s board chairman, Mr. Babatunde Savage had also noted that, “The Board is confident that our strategy is sound and that we are making the right investments in the company to ensure our long term competitiveness. We will continue to support the management in its efforts to build a business that aims to consistently deliver growth for stakeholders.
“The Board however notes that the COVID-19 pandemic that has led to nationwide restrictions will continue to have an impact on the operations of the business in the current financial year. Both the Board and Management are closely monitoring the evolving situation and continue to be agile and take actions to protect the business.”
With outstanding shares of 2.19billion and a share price of N14.45 per share, its shareholders have lost 59 per cent year on year. Meanwhile, the shares of the Company are held in the ratio of 46% by Nigerians and 54% by offshore investors.
Indeed, except something quite miraculous happens soon, the future of this long-standing star is not exactly assured. And that is plainly stating it from the evidence of where its numbers stand.