Guinness Nigeria, a subsidiary of Diageo plc and leading total beverage alcohol company, has posted a revenue of N96 billion for the nine month ended 31 March 2020.
The result shows that the brewer delivered a profit after tax of N1.4 billion. The revenue, however, represents a 5 percent decline from the result reported in the corresponding period of 2019. The profit also reflects a 68 percent decline from the result posted in the corresponding period of 2019.
Marketing cost rose by 6 percent, with distribution and administration expenses rising on the back of inflation.
“In the three months ended 31 March 2020, Guinness Nigeria’s revenue declined 5 percent compared to same period last year on the back of volume decline driven by the price increases that we took in the quarter and the initial impact of COVID-19,” Baker Magunda, managing director/CEO, Guinness Nigeria Plc said.
“Revenue for the year to date continues to be impacted by excise duty increases which prior to February were not covered by price. We remain confident however, that the underlying performance of our main strategic focus brands/categories – Guinness, Malta Guinness, RTDs and spirits – remains solid.”
Magunda said he was pleased with the work his team were doing on productivity.
He pointed out that despite Nigeria’s inflation rate sitting at 12 percent, cost of sales declined at a faster rate of 7percent compared to revenue, and therefore improved the year-to-date gross margin to 32 percent.
He explained that similar productivity initiatives meant that the increases in distribution expenses by 2 percent and the administration expenses by 7 percent were still below inflation.
“We also boosted our marketing spend by 6 percent to support our brands. The operating profit declined by N2.1bn. The recent depreciation of the Naira drove the increase in finance costs by N2.1b year on year, impacting profit delivery,” he further said.
He noted that the brewer was impacted in the last half of March by the COVID-19 outbreak, stressing that it had also proven to be an economic crisis significantly impacting most businesses.
“As a proud business with 70 years heritage here, we stand with Nigeria by aligning with the efforts of the federal and state governments to stop spread the virus across the country. We have made donations of hand sanitisers as well as provided non-alcoholic drinks to the Nigeria Center for Disease Control (NCDC), the Federal Ministry of Humanitarian Affairs, Disaster Management and Social Development and several states in Nigeria. These materials are to support frontline health workers and security officers as they work tirelessly to curtail the spread of the virus, as well as to provide relief to vulnerable groups in various communities in Nigeria,” he noted.
Babatunde Savage, chairman of the board of Guinness Nigeria Plc, said the board was confident that the company’s strategy was sound and that it was making the right investments to ensure long-term competitiveness.
“We will continue to support the management in its efforts to build a business that aims to consistently deliver growth for stakeholders,” he said.
“The board, however, notes that the COVID-19 pandemic that has led to nationwide restrictions will continue to have an impact on the operations of the business in the current financial year. Both the board and management are closely monitoring the evolving situation and continue to be agile and take actions to protect the business,” he further said.
The performance has revealed that Nigerian companies are facing cost pressures. The cost of doing business in Nigeria is rising because manufacturers spend so much on generating their own energy and on logistics. The cost of moving raw materials from Apapa to Ikeja, Guinness Nigeria’s headquarters, has risen by over 40 percent between December 2019 and March 2020 owing to the perennial congestion at Apapa and Tin Can ports. The pressure on cost is not limited to Guinness, but extended to all manufacturers in the country.
More so, economists generally say that economic agents respond to incentives. Put in a different way, they also respond to taxes and cost hikes. As pointed out by Magunda, high excise taxes have been the bane of alcohol and tobacco companies recently. In 2018, the Federal Government said brewers would pay 0.35k for per centilitre (Cl) of alcohol in 2019 and 2020. Spirits were to attract N1.50k per Cl in 2018, N1.75k per Cl in 2019 andN2.00 per Cl in 2020.
”Ultimately manufacturers of the affected products will have to consider whether to pass on the full increase, share with consumers or bear the additional cost,” PwC said in its 2017 analysis of the tax.
Again, the result reflects the shrinking wallets of the Nigerian consumers. Nigeria is world’s poverty capital, with over 87 million potential consumers living below $1.90. Manufacturers produce in a very high cost environment and then sell to the consumers who are majorly poor. This partly accounts for why most manufacturers are posting poor numbers recently, analysts say.
Odinaka Anudu
