Taofik Salako, Deputy Group Business Editor
GUINNESS Nigeria Plc is struggling with declining sales and margins amid straightened financing situation that has seen loans and interest expenses rising to their highest in recent period. The company relapsed into losses in the immediate past year, leaving shareholders with substantial negative returns.
Audited report and accounts of Guinness Nigeria for the year ended June 30, 2020 showed declines in nearly all major performance indices. Turnover dropped by20.6 per cent while interest expenses rose by about 74 per cent, leaving the company with net loss of N12.6 billion. With negative net earnings, the company dipped into reserves to sustain dividend payment, while shareholders’ funds diminished by 18 per cent.
Financing structure
Total assets dropped by 10.4 per cent from N160.79 billion in 2019 to N144.15 billion in 2020. This was due to decline in both current and non-current assets. Non-current assets dropped by 11 per cent from N101.45 billion to N90.17 billion while current assets declined by 9.1 per cent from N59.3 billion to N53.97 billion. Bank loans however jumped by 332 per cent to N22.80 billion in 2020 as against N5.28 billion in 2019. This contributed to 24 per cent increase in current liabilities from N48.86 billion to N60.6 billion. While paid up share capital remained unchanged at N1.095 billion, total equity funds dropped from N89.06 billion to N73.04 billion.
Expectedly, the company became highly geared with weakening underlying financing strength. The proportion of debt to equity funds worsened to 31.2 per cent in 2020 as against 5.9 per cent in 2019. Equity funds/total assets ratio weakened to 50.7 per cent from 55.4 per cent. Current liabilities now amounted to 42 per cent of total assets as against 30.4 per cent in previous year. Long-term liabilities/total assets ratio also dropped from 44.6 per cent to 49.3 per cent.
Efficiency
Total number of employees increased from 780 persons in 2019 to 822 persons in 2020. Total staff costs also increased from N8.77 billion to N10.43 billion. There were general improvements across the company’s remuneration cadres, ostensibly due to salary increases during the period. Average staff cost per employee thus rose from N11.24 million in 2019 to N12.69 million in 2020. Conversely, from average contribution of N9.11 million by each employee to pre-tax profit in 2019, each employee generated average pre-tax loss of N20.8 million in 2020. Total cost of business, excluding financing charges, almost left no margin at 99.5 per cent in 2020 as against 93.5 per cent in 2019.
Profitability
Actual profit and loss figures and underlying profitability ratios indicated a major general decline in the profitability of the brewer. Total sales dropped by 20.6 per cent from N131.5 billion to N104.4 billion. The top-line decline was due to drop in sales within its main Nigerian market and exports. Sales within Nigeria dropped from N124.99 billion to N102.58 billion while exports declined from N6.51 billion to N1.80 billion. Cost of sales stood at N71.05 billion in 2020, 22.2 per cent reduction from N91.37 billion in 2019. Gross profit thus dropped by 16.9 per cent from N40.13 billion to N33.33 billion. Total operating expenses increased marginally by 3.9 per cent from N31.61 billion to N32.86 billion. Non core business income reduced by 47.5 per cent from N1.53 billion to N804 million. Interest expenses however leapt by 73.8 per cent from N2.61 billion to N4.54 billion. With these, pre-tax profit of N7.10 billion in 2019 turned into a pre-tax loss of N17.07 billion in 2020. After taxes, net loss stood at N12.58 billion in 2020 as against net profit of N5.48 billion in 2019.
Basic loss per share stood at N5.74 in 2020 compared with earnings per share of N2.50 in 2019. The board of the company earmarked N3.33 billion as cash dividend for the 2020 business year, representing a dividend per share of N1.52 compared with N4.03 billion paid for 2019 business year, a dividend per share of N1.84. Net assets per share declined by 18 per cent from N40.66 in 2019 to N33.34 in 2019. Dividend cover relapsed from 1.36 times in 2019 to -3.78 times in 2020.
While gross profit margin increased from 30.5 per cent to 31.9 per cent, pre-tax profit margin reversed from 5.4 per cent to -16.4 per cent. Return on total assets depreciated from 4.4 per cent to -11.8 per cent while return on equity dropped from 6.2 per cent to -17.2 per cent.
Liquidity
The liquidity position of the company weakened further during the period. Current ratio, which broadly indicates ability of the company to meet emerging financing needs, dropped to 0.9 times in 2020 as against 1.2 times in 2019. The proportion of working capital to total sales turned negative, from 8.0 per cent in 2019 to -6.3 per cent in 2020. Debtors/creditors ratio stood at 48.3 per cent in 2020 as against 111.7 per cent in 2019.
Governance and structures
Incorporated in April 1950, Guinness Nigeria Plc started as a trading company importing Guinness Stout from Dublin. It subsequently began local production of several alcoholic and non-alcoholic products including leading brands such as the flagship Guinness variants, Malta Guinness, Harp Lager and Orijin variants. Starting from January 2016, Guinness Nigeria acquired the rights to manufacture or import, market, distribute and sell international premium spirit products and other brands of Diageo Plc in Nigeria.
The 13-member board of directors is chaired by Mr Babatunde Savage with Mr Rory O’Keeffe, an Irish, as vice chairman. Mr Baker Magunda, Ugandan, leads the executive management team while Mr Stanley Njoroge, Kenyan, serves as finance and strategy director. The reality of its business situation may require Guinness Nigeria to take a second look at the size of the board, especially the large number of independent non executive directors. Altogether, the company remains within extant codes of corporate governance.
Diageo Plc holds the majority equity stake of 58.02 per cent in Guinness Nigeria through two subsidiaries, Guinness Overseas Limited, which holds 50.18 per cent and Atalantaf Limited, which holds 7.84 per cent.
Analyst’s opinion
The brewing industry, like other consumer goods industries, is facing complicated mix of declining consumer purchasing power and rising costs, limiting both abilities to increase sales and margins. Increase in Excise Duty, Value Added Tax and other regulatory costs compounded steady rise in inflation and distribution cost. The disruptions created by the COVOD-19 pandemic worsened the overall situation. Most of these challenges may not fizzle away in the immediate period. Guinness Nigeria needs to reassess the fundamentals of its business, realign costs and seek to optimise productivity and cost efficiency. Such may be painful but necessary decisions for a large corporate, but it needs all the same to look at long-term strategy to optimise sales and earnings. It also needs to avoid emerging high leverage.
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