• Friday, March 01, 2024
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Guinness Nigeria: Remaining resilient despite FX crisis

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No doubt, most sectors in Nigeria have continued to record losses as a result of the current foreign exchange increase in Nigeria. This has affected their bottom line, as many struggle to stay afloat.

Among these sectors, one that has continued to suffer loss is the Brewery sector.

Analysts say the large devaluation of the naira following the floating of the currency in mid-June coupled with rising interest rates led to increased operating costs for multinationals whose major costs including finance costs are denominated in foreign currencies.

Read also: Guinness stops importation of premium spirits to reduce FX exposure

The Central Bank of Nigeria (CBN) increased the monetary policy rate, also known as its benchmark interest rate, for the eighth consecutive time in July by 25 basis points to 18.75 percent.

Some brewers have continued to make losses majorly because of the impact of the foreign exchange reform on their finance costs.

When finance cost skyrockets significantly, it can erode all the significant profit companies make such that in terms of net profits, they are making losses.

On June 14, 2023, the CBN merged all segments of the foreign exchange market into the Investors and Exporters window, and reintroduced the ‘willing buyer, willing seller’ model. The naira has continued to depreciate against the dollar and other major foreign currencies since then.

Just as major Brewery companies recorded losses, so also Guinness Nigeria, one or the major players in the sector also recorded losses.

What ordinarily should have been a year of bumper harvest for both the management, board and shareholders of Guinness Nigeria PLC turned out to be a bad one indeed as the brewery giant recorded a whooping N80billion losses at the end of the business year in June 2023.

While taking stock of the outgoing operating year, John Musanga, the Managing Director, who attended the annual general meeting (AGM) for the first time since resuming as a member of the top brass of the company lamented that everything was looking good in the books until the federal government policy announcing the refloating the naira thus adversely affecting its earnings which suffered largely due to the company’s FX pushbacks.

Musunga said, “When President Tinubu announced new policies that resulted in currency devaluation, we were carrying huge foreign exchange exposure that we have to revalue, which removed us from the very healthy profit position which we were going to report in June. If that announcement had been made on July 1, we would have made quite a bit of profit. But because it was made in June and our year closes in June we made a N19 billion loss because of that devaluation.”

“We do not want to carry forward that kind of exposure whereby we increase our foreign exchange exposure in our balance sheet and our profit and loss account. Being very tactful in how we move these imported spirits around, will free Guinness Nigeria to utilise the foreign exchange that we earn from our business and the little that we receive from the government to buy raw materials that we use to manufacture. That is one of the big motivations for that change,” he had explained.

Remaining resilient despite FX crisis

Despite the difficult operating environment caused by the FX crisis, Guinness Nigeria continues to leverage innovation to sustain it’s position as one of the leaders in the market.

The company has been in the Nigerian market for 74 years, and has become a part and parcel of the Nigerian economy.

The company’s revenue grew by an impressive 11 percent increase in its topline revenue, despite facing severe macro-economic challenges for the financial year ended June 30, 2023.

Omobola Johnson, Chair of the Board of Directors of Guinness Nigeria Plc said the strong financial performance and strategic achievements reflect the dedication and handwork of their team alongside the unwavering support of shareholders and stakeholders.

Read also: Johnnie Walker maker to establish Nigerian entity, as Guinness ends whisky sales

Johnson further explained that at the heart of Guinness’ success is innovation. “Innovation and how best to satisfy our customers with our products, are always top of mind for us at Guinness. As Nigeria’s foremost Total Beverage Alcohol company, we take pride in the legacies of our iconic brands and we hope to continue turning out products that will ensure we retain that pride.

John Musunga, its managing director, expressed confidence in the company’s continued growth.
“In recent years, our company has faced several challenges, including the COVID-19 pandemic and the global supply chain crisis. Despite these, we have continued to innovate and grow. We believe we will continue to thrive, by constantly innovating, being committed to sustainable practices, upholding corporate governance, and community engagement.

“These values have guided our company and will continue to guide us in the years to come.”

The company has robust research and development as part of its business, as it continuously seek what they need, preferences and aspirations of the Nigerian consuming public. With that in mind, the company has said it will continue to meet those needs.

Cushioning effect of FX crisis

Part of the ways to cushion effects of the foreign exchange on the business is that the company became tactical about freeing itself from marketing its international spirits brands and rather use its forex to buy raw materials with the forex it receives from the government as well as its earnings instead of having to give it away again.

“When you take away that spirit business and you’re left with this large beer business, you’re allowing both to co-exist. Guinness Nigeria Plc remains but Diageo has committed to register a company that will sell these spirits with a distribution model that will be more efficient and allow the movements of products.

“So, we’re not moving away from spirit business per se but just being strategic in the way we market our international spirit brands using expertise to market and produce those brands. So I think the expectations for the business is that we will see if hopefully in the coming future the two businesses will thrive independently. As a business, we always have to look at our business in the light of the market dynamics,” Musunga explains.

Leadership position in the market

In 2021, Guinness Nigeria officially piped International Breweries for the second position after seeing their revenues rise by a whopping 81.9 percent year on year.

Two years ago, Guinness Nigeria Plc overtook International Breweries Plc as the second-largest Brewer quoted on the Nigerian Exchange based on the market share of revenues.

According to research by Nairametrics, Guinness Nigeria Plc was the most improved of three top competing companies catapulting to the number two position at the end of December 2021. Guinness took market share from International Breweries and Nigeria Breweries.

During the period under review, the company saw its revenues for the period January to December 2021 rise to N197 billion compared to N108.4 billion in the Covid year.

Guinness changed its business model in recent years after introducing several quality value brands such as its ready-to-drink and malt segments.

In its investor presentation published in January 2022,the company reported growth in all its segments. RTDs +80 percent Malts +149 percent, Premium Spirit +59 percent, Mainstream Spirits +38 percent and Brand Guinness +33 percent. Guinness has also doubled its ad spend going from N5.9 billion in six months to December 2019 to N10.8 billion in the corresponding period in 2022.

Future outlook

In a bid to not only operate profitably but remain one of the leaders in the Brewery sector, Musunga, its managing director has said Guinness Nigeria will continue to explore sourcing opportunities locally that would not only help drive employment but also see the company take advantage of pricing opportunities as they arise to ensure its revenue remains on a steady growth path and will continue to deliver value to its stakeholders.

The company has since increased its capacity to produce locally and will deploy better measures to grow local production.

Read also: Guinness, Champion Breweries show strong cash flows in first quarter results

He said despite the challenges, the company is excited to embark on the next phase of its journey, and they are confident that the company’s commitment to innovation and resilience will help them achieve even greater success.

According to SImply Wall St, a platform that provides an in-depth analysis of over hundreds of stocks and easy-to-read reports that help in knowing the portfolio better says as regards Earnings vs Savings Rate: Guinness is forecast to become profitable over the next three years, which is considered faster growth than the savings rate (12.3 percent).

Earnings vs Market: Guinness is forecast to become profitable over the next three years, which is considered above average market growth.