By Dipo Olowookere
The board of Guinness Nigeria Plc said it is very confident of the strategies put in place to turn the fortunes of the company around in the midst of the overwhelming operating challenges.
Since the Mr Muhammadu Buhari-led federal government introduced an excise duty for the alcohol sector in the Nigeria few years ago, operators have been struggling to remain profitable.
Also, the low purchasing power of consumers in the country has compounded the woes of beer makers, recording low turnover and profit.
In the third quarter of the 2020 financial year of Guinness Nigeria, things went bad as the revenue generated by the company in the first nine months of the year depreciated by 5 percent to N96.0 billion from N101.4 billion.
According to the brewery giant, this decline was driven by the impact of drop in volume as a result of impacts from the increase of excise duty, price increases and the early-stage impacts of COVID-19 in March.
The impact of beer excise increases represents a loss of about 2 percent revenue growth year on year, and flows through gross and operating margins to net profit, the firm said.
It added that despite this impact, Guinness, Dubic and mainstream spirits delivered growth year to date, while Malta remained impacted by lower export opportunities relative to last year.
It further said absolute cost of sales was lower than the previous year partly due to top line volume decline,
while cost per unit also reduced as it continues to see the benefit of strong focus on productivity to mitigate inflationary pressures.
During the period under review, gross margin increased to 32 percent mainly as a result of cost of sales productivity that mitigated excise duty increases.
Guinness Nigeria said it has since taken price to cover the excise duty increase on spirits and the VAT increase across the portfolio.
The more focus on its brands like Guinness, spirits and Malta in line with its strategy resulted in the higher market and distribution expenses, which stood at N18.2 billion in the first nine months of the year in contrast to N17.5 billion in the same period of 2019.
It was disclosed that distribution and administrative costs marginally increased within the year compared to same period last year on the back of inflation.
Operating profit declined by N2.1 billion to N5.2 billion from N7.3 billion, with the Operating Margin declining 2 percent due the this increased spend.
It was observed that the devaluation of the local currency has impacted financing costs which increased significantly in the period to N3.6 billion from N1.8 billion.
As a result, the profit before tax decreased to N2.0 billion from N6.3 billion, while the profit after tax dropped to N1.4 billion from N4.3 billion.
But despite this disappointment performance, the board said it was “confident that our strategy is sound and we are making the right investments in the company to ensure our long-term competitiveness.”
“It will continue to support the management in its efforts to build a business that aims to consistently deliver growth for stakeholders,” it added.
The board noted that the COVID-19 pandemic that led to nationwide restrictions for five weeks will continue to have an impact on the operations of the business in the current financial year.
“Management is closely monitoring the evolving situation and continues to be agile and take actions to protect our business and brands. We will provide guidance when necessary on the likely impact on the business,” it assured.
