Guinness Nigeria faces slim chances for turnaround

Guinness Nigeria Plc faces continuing regulatory, competitive and inflationary challenges in the operating environment that caused a historic loss of nearly N13 billion in its 2020 financial year ended June.

The company’s current financial year running to June 2021 isn’t, therefore, showing good prospects for a quick turnaround.

The N12.6 billion loss in the just concluded financial year erased more than two preceding years’ profits put together. That stands as the worst earnings record the brewing company has
seen in close to a decade.

The company’s management blames increases in excise duties and financing costs on its N22 billion balance sheet debts for the loss. Excise duty on beer and stout was raised from 30 kobo per centilitre in 2018 to 35 kobo in 2019.

The biggest hit, however, came from the loss of sales, which left no room for absorbing inflation-induced cost increases. Other income fell by 35.6 percent to N503 million to reinforce the loss
of sales revenue. Finance income dropped by 60 percent to N301 million during the year.

Management could not therefore mitigate the impact of increased excise duty and other rising expenses. Guinness’ high brand reputation that used to be counted on for pushing sales isn’t working this time around. The company closed the 2019/20 financial year with a turnover of N104 billion.

This is a drop of about 21 percent at the full year, accelerating from a drop of 8 percent in the preceding financial year.

The closing sales revenue figure for the year is the lowest in four years – only slightly ahead of the company’s turnover figure of N102 billion posted as far back as 2016. Loss of sales was
much more pronounced in export revenue, which crashed by over 72 percent to N1.8 billion at the end of the financial year.

The company’s record shows a progressive weakening of sales from quarter to quarter – from flat growth in the second quarter to a drop of 5 percent in the third, speeding up to 21 percent
at full year. Growth functions strong enough to stem the downward trend aren’t likely to be deployed any time soon.

The weakness in the final quarter is likely to spill over well into the current financial year. The final quarter contributed just about N8 billion or 7.7 percent of the closing sales revenue figure for the 2020 financial year. Also, the entire loss for the year was incurred in the final quarter, which wiped off the closing after-tax profit of about N1.4 billion at the end of the third quarter.

Guinness’ operating challenges runs all the way from top to the bottom lines – combining falling sales revenue with rising costs. It was losses all the way from operating results down to the
bottom line.

On the side of costs, only input expenses showed a slight moderation during the year. Cost of sales declined slightly ahead of sales at 22 percent to N71 billion. That led to a moderated drop of 17 percent in gross profit to N33 billion against the 21 percent drop in sales. The gross profit margin was therefore slightly improved at 32 percent at the end of the financial year.

Marketing/distribution expenses dropped less rapidly than sales at below 15 percent to N18.5 billion. The company, therefore, paid more in marketing/distribution cost per unit of sales during the year.

An impairment loss of N11.7 billion from write off of idle, damaged and obsolete assets and new impairments was the biggest contributor to the loss for the year. Also, net impairment loss on financial assets jumped more than six times to over N2 billion. Further pressure came from a 45 percent upsurge in administrative expenses in the year to over N14 billion.

These developments led to a big operating loss in the final quarter, which erased an operating profit of N5.2 billion at the end of the third quarter, closing the year with an operating loss of
N12.8 billion.

The rising cost of finance led by foreign exchange losses added to an operating loss position. Net finance expenses grew by 128 percent to N4.2 billion and swelled pre-tax loss to over N17 billion.

A tax credit of N4.5 billion came quite handy to cut the post-tax loss to N12.6 billion for the financial year. This is against an after-tax profit of N5.5 billion for the preceding financial year.

The loss for the year has shrunk the company’s equity resources with retained earnings dropping by nearly 40 percent to N24.5 billion and shareholders’ funds falling by 18 percent to N73 billion. The company closed the year with a loss of N5.74 per share, down from earnings per share of N2.50 in the 2019 financial year.

Looking forward, Guinness’ management is focusing on key categories – to step up the growth of spirits and launch innovative ways to court consumer demand. How to keep the company and its brand ahead of the competition is the challenge for Guinness Nigeria in the current financial year.