Baker Magunda, CEO, Guinness Nigeria

By  OKEY ONYENWEAKU

Guinness Nigeria may still be suffering the buffeting effects of the country’s weak economy and stiff tax on tobacco and alcohol.

This is reflected in the giant brewer’s half year results for the period ended December 31, 2019. The result released on the floor of the Nigerian Stock Exchange at the weekend revealed that its profit after tax dipped by almost half its tally recorded in its previous performance in the corresponding six months ending December 31, 2018.

The half year financial statement of the brewer indicated that its post-tax profit declined 49 per cent to N1.32 billion from N2.58 billion recorded in the comparable period in 2018.

The drop in profit came despite the company’s revenue rising 0.78 per cent to N68.33 billion in the first half of its 2019/2020 financial year, compared to N67.80 billion.

A review of the Guinness Nigeria’s revenue during this period showed that majority of it came from domestic sales, which was up 3.76 per cent, while patronage from outside the country fell 42.56 per cent.

The company could equally not hold costs down as expenses on sales climbed 2.48 per cent to N48.48 billion and marketing and distribution cost increased 1.37 per cent to N11.71 billion.

Commenting on the results, Managing Director/CEO, Guinness Nigeria Plc, Mr. Baker Magunda, said: “In the H1 ended December 31, 2019, Guinness Nigeria delivered results that reflected a very strong second fiscal quarter performance despite continued regulatory, competitive and inflationary challenges in the operating environment. Strong growth in Guinness, spirits and ready-to-drink (RTD) together with cost benefit from various productivity initiatives has helped to mitigate other risks. Despite the increase in excise duties on beer and mainstream spirits, the competitive environment was such that there was lack of pricing opportunities in the period to mitigate this.”

“Looking forward, we will continue to drive our strategy which has deliberate focus on key categories, growing spirits faster, continuing to innovate to meet consumer needs, and driving productivity. Whilst we are conscious of the continued challenging operating environment with double digit inflation and pressured consumer spending, we are positive about the execution of our strategy for the remainder of the 2020 financial year. We remain confident of the resilience of our total beverage alcohol portfolio strategy as a key driver of sustainable growth in the market.”

The results rather surprised analysts who expected an even worse performance given the harsh operating environment. After all, the jewel of the breweries industry, the Nigerian Breweries Plc is also suffering serious setback. The former super performer, NB Plc in fact, caved in to the vagaries of the operating environment and posted a huge loss of –N2.2billion in third quarter 2019. The company had plunged into a N72.8billion debt, in addition to the change in exercise tax charge which was increased by 30 per cent. So market observers believe that not even Guinness has the magic to overcome the hard times so easily.

Guinness Nigeria’s problem started in 2016 when it first posted a loss of N2billion.

Four years ago, the company’s huge rise in cost of goods as a proportion of sales choked life out of the company’s net sales and sent profits 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 brewer’s 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.

The former Managing Director/Chief Executive Officer of Guinness Nigeria, Peter Ndegwa, had blamed the slide on three factors. “Our performance this year was impacted by two major factors, one being the very tough economic challenges around consumer spending, driving consumer preferences towards value brands across the sector, the other, and more significant factor being the effect of FX policy and the devaluation of the Naira,” he had explained.

While the company have blamed the shrinking economy, which has remained weak at the GDP growth of 2.3 per cent in the third quarter 2019, the weak naira which has remained relatively stable is also partly responsible for 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 biting economic challenges.

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 operators.

Low consumer spending has also been fingered for the challenge. Among the troubles of the industry is rising consumer prices and growing volumes of unpaid workers’ salaries in public and private sectors, in addition to increasing unemployment. Also, there is stiffer competition in the sector and companies seem to increase their cost of sales now than ever before. Interestingly, the company has presently rolled out strategies to recapitalise.

Some of its competitors include Anheuser-Busch InBev, the world’s largest brewer.

Analysts say that overall 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 and 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 losses and I don’t see it performing wonders in this economy’’.

Agusto & Co., Research, Credit Ratings, Credit Risk Management had rated Guinness Nigeria Plc 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-invent 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.

The company’s stock closed on Friday January 31, 2020, at N30.20 per share.