The nation’s brewery industry witnessed a 37 percent decline in industry profit which amounted to N15 billion, as Guinness Nigeria released its audited financial statements for the period ended June 30, 2019. Earlier in March, Nigerian Breweries Plc released its audited financial statement for December 2018 and both firms share similar trends when their results were analysed.
With Guinness audited results out, analysts and stakeholders now have a clear direction of the effect of the rising unemployment and intense competition on firms in the nation’s brewery sector. GDP figures from first quarter of 2018 to first quarter of 2019, which was the financial year-period for the two beverages giants, show that the food, beverages and tobacco sub sector-the sub sector where the activities of brewers are captured, recorded a real growth of 5.46 percent in Q1 2018; 1.21 percent in Q2 2018; 2.90 percent in Q3 2018 and 2.22 percent in Q4 2018. In all, that sub sector grew by 2.93 percent. In the Q1 2019, real GDP growth rate for the sub sector was 2.93 percent. With both Guinness and Nigerian Breweries posting declines in sales, it then means that the drivers of the growth are other business units such as Nestle and other food processors in that sectors.
According to Nigeria’s data agency, the National Bureau of Statistics (NBS), unemployment rate rose to 23.1 percent as at Q3 2018, thus, implying that 20.9 million Nigerian willing and ready to work could not find jobs, and this further confirms the predicament of firms in the nation’s brewery sub sector.
Guinness Nigeria recorded N131.5 billion in turnover in the financial year that ended in June 30,2019 , and that amounted to a decline of 8 percent when compared with N143 billion the firm made in corresponding period in 2018. The decline cuts across both the domestic and export sales. In the domestic market, Guinness Nigeria realised N124.9 billion, a decline of 7.9 percent when compared with N135.7 billion it made in the same market during a corresponding period in 2018.
However, sales fell by a higher margin in the export market. In 2019, total export proceeds for Guinness Nigeria stood at N6.51 billion, which amounted to a 10.1 percent decline when compared with N7.24 billion it made in similar period in 2018. In both periods, domestic market share stood at 95 percent.
“The Guinness Nigeria’s results are in line with our expectations. The brewery space has been facing weakness in revenue growth for a while and the latest results are a confirmation of their challenges “, said Ahmad Junaid, analyst at Meristem Securities.
Nigerian Breweries’ turnover declined by 5.9 percent, and this was mainly from the domestic market. Local sales during the financial year ended December 31, 2018 stood at N324.20 billion, representing 5.9 percent decline while at the export market, sales rose by 57.4 percent from N121.03 million in December 2017 to N190.5 million in December 2018.
Between the two brewers, Nigerian Breweries still controls 71 percent of the market while Guinness Nigeria controls 29 percent of the market when measured by total sales in both the domestic and export markets.
For both firms, it was more expensive producing during the reference period. In 2017, it cost Nigerian Breweries 58 kobo to generate 100 kobo revenue whereas in 2018, the same firm expended 61 kobo to generate 100 kobo revenue. For Guinness to generate 100 kobo revenue, cost rose from 60 kobo to 66 kobo during the period.
This was in spite of the 36 percent reduction in industry finance cost which fell to N10.5 billion from N16.3 billion during the reference period. Finance cost reduction was higher on the part of Guinness Nigeria, which cut finance cost down to N2.61 billion as against N5.64 billion in corresponding period in 2018, representing a decline of 53.7 percent. For Nigerian Breweries, finance cost was reduced by 26 percent from N10.7 billion to N7.89 billion.
Guinness Nigeria further cut down marketing and distribution expenses by 16.4 percent from N26.01 billion in 2018 to N21.8 billion in 2019. On the contrary, this metric rose by 4.8 percent for Nigerian Breweries from N66.9 billion to N70.1 billion during the reference period.
Further, Guinness’ salaries and wages were slashed 11.5 percent during the period from N8.6 billion in 2018 to N7.6 billion in 2019. This decline could not be fully attributed to the reduction in the number of its employees during the period. According to available data, Guinness Nigeria had 780 employees by June 2019 as against 804 in June 2018. This implies that while the number of employees fell by 3 percent, the corresponding salaries and wages declined by 11.5 percent.
While there was a reduction in the number of the Nigerian Breweries’ employees from 3,328 in 2017 to 2,983 in 2018, their salaries and wages rose by 4.9 percent from N30.1 billion in 2017 to N31.5 billion in 2018.
Industry profit after tax (PAT) fell to N24.9 billion from N39.8 billion in corresponding period, representing N15 billion loss in profit. In spite of Nigerian Breweries accounting for 78 percent of the industry profit, its PAT fell by a higher margin of 41.2 percent from N33.1 billion to N19.4 billion during the period. Nigerian Guinness’ PAT fell by 18.4 percent from N6.7 billion to N5.5 billion.
As a committed organisation to all its stakeholders, Guinness Nigeria has proposed a final dividend of N1.52 per 50 kobo ordinary share. This is for shareholders whose names appear in the register of company on or before September 20, 2019. Payment date is October 24, 2019.
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