Guinness Nigeria: Worst performance in over 10 years

Magunda Baker, MD/ CEO Guinness Nigeria PLC

By Kayode Tokede

Guinness Nigeria Plc for financial year ended June 30, 2020 reported decline in revenue, attributable to COVID-19 lockdown, among other factors.

The multinational company also reported increase in loans financing that also contributed to its worst performance in over 10 years.

The COVID-19 led to reduction in stock in trade, closure of on-trade chancel and closure of inter-state movement.

Guinness Nigeria reported 21 per cent decline in revenue to N104.38billion in 2020 as against N131.49billion reported in 2019.

The breakdown in revenue showed sales in Nigeria closed 2020 at N102.6billion as against N124.99billion reported in 2019 while Export dropped by 72.4 per cent to N1.8billion in 2020 from N6.51billion reported in 2019. Nigeria is the company’s primary geographical segment as over 99 per cent of the company’s reserve is earned from sales in Nigeria.

Cost of sales dropped by 22 per cent to N71.05billion in 2020 from N91.4billion, dragging Gross profit down by 16.9 per cent to N33.33billion in 2020 as against N40.13billion reported in 2019.

Amid weak revenue, Guinness Nigeria reported about four per cent increase in total operating expenses to N32.86billion in the year under review from N31.61billion reported in prior year.

The breakdown of total operating expenses showed that marketing and distribution expenses dropped by 15 per cent to N18.5billion from N21.75billion reported in 2019 while administrative expenses increased by 45 per cent to N14.34billion in 2020 from N9.86billion reported in 2019.

This brings Guinness Nigeria operating loss to N12.8billion in 2020 from N8.97billion operating profit reported in 2019.

Finance income moved from N750.9million to N301million in 2020 while finance cost increased significantly from N2.6billion in 2019 to N4.5billion reported in 2020.

For the financial year ended June 30, 2020, the company reported N17.07billion loss before tax as against profit before tax of N7.1billion in 2019.

Also, the company reported a loss of N12.58billion loss as against N5.49billion profit reported in 2019. The company did not proposed any dividend in 2020 but had declared dividend of N1.52, 17 per cent below N1.84 declared in 2019.

Weaker financial position

Guinness Nigeria reported total equity was down by 18 per cent to N73.04billion in 2020 from N89.06billion reported in 2019 as Total Assets dropped by 10.35 per cent to N144.15billion in 2020 from N160.79billion reported in 2019.

The leading Nigerian breweries maker, is struggling with managing its $23 million debt. This is due to the lack of foreign exchange liquidity in the local foreign exchange market that has made it difficult for the company to refinance the loans.

Guinness’s Finance and Strategy Director, Stanley Njoroge, disclosed this during an investor call last week.

“We want to refinance it but there is currently no foreign currency in the market,” Njoroge said.

Guinness, Nigeria’s second-largest brewer by market share, saw its outstanding debt climb by 16per cent to N23.2 billion in June 2020, compared to a year ago. Meanwhile, finance costs also rose by 74per cent to N4.5 billion.

As Njoroge rightly admitted, “Foreign exchange is a big concern for us.” Nigerian companies are struggling to access the greenback after a slump in oil prices led to a decline in export earnings, thereby piling pressure on the CBN’s capacity to meet dollar obligations to investors and businesses.

On Friday, the brewery giant reported an annual pre-tax loss of N17.07 billion ($45 million), hurt by write-downs and COVID-19 induced disruptions. It also reported a loss per share of N5.74.

Its share price fell by almost nine per cent at the close of the week’s trading session.

At the time of this report, the N31 billion market capitalized company was trading around N14.15 per share on the Nigerian Stock Exchange (NSE) recording a 9.29per cent drop from its previous closing price of N15.60.

This is within touching distance to its 52-week low value of N12.85

Guinness Nigeria had acquired the rights to import, market, distribute and sell in Nigeria the international Premium Spirit brands of Diageo Plc, its parent company with effect from January 1, 2016. The company has exclusive distribution rights to Diageo’s iconic brands in Nigeria including Baileys. Smimiff, Gordons, Captain Morgan, Tanqueray, Ciroc and the Johnnie Walker range.

Guineess Nigeria installed Polyethylene terephthalate (PET) production lines and commenced production and sale of products in PET format in the 2018 financial year. The company currently produces Malta Guinness, Orijin Zero and Dubic malt in PET formats and also has PET formats for its Baileys Delight, Orijin Herbal Gin.

In terms of its fundamentals, its current dividend yield is about 10.74per cent while its price to book ratio is 0.3559. This suggests the stock could be undervalued.