Economy
Guinness Nigeria to Maintain Strong Market Position Amid Cost Pressures
By Dipo Olowookere
One of the leading brewery companies in the country, Guinness Nigeria Plc, has been tipped to maintain its strong market position despite the various challenges it is facing at the moment.
Share price of the company at the Nigerian Stock Exchange (NSE) has plummeted lately and at the close of market on Monday, it was down by 30 kobo to sell at N18 per share.
Last week, a local rating agency, Global Credit Ratings (GCR), assigned national scale issuer ratings of A+(NG) and A1(NG) in the long term and short term respectively to Guinness Nigeria Plc, with the outlook stable.
In a statement obtained by Business Post, GCR said Guinness Nigeria, which controls about 22 percent of the market share in the country, should remain relevant in the space as a result of its “well-diversified portfolio of strong brands spanning lager, stout, spirits and non-alcoholic beverages.”
However, it warned that heightened competitive pressure, coupled with the tough operating environment will continue to affect the organisation.
Guinness Nigeria is a subsidiary of Diageo Plc, a global brewing company with operations in more than 180 countries.
With Nigeria being one of its major markets, Diageo is committed to providing technical, strategic and funding support to the firm, which experienced growth in revenue supported by an increase in sales volume and addition of some new local products to its portfolio.
“Like other industry players, Guinness Nigeria has experienced rising margin pressure, triggered by the depreciation of the Naira, which has impacted the prices of imported raw materials and other locally sourced inputs.
“Cost pressures are expected to worsen in the medium term given the uncertainties in the Nigerian foreign exchange market, coupled with inability to fully pass on additional costs to consumers.
“This notwithstanding, management is confident that earnings margins will stabilise due to the efficiency initiatives, centred on cost rigour and high margin products, rather than volumes,” GCR said.
It said the spike in debt at FY16 and FY17 saw net gearing rise above 80 percent and net debt to EBITDA over 190 percent, from a low of 31.4 percent and 56.4 percent at FY15.
However, gross debt has reduced substantially since FY18, following the conversions of intergroup loans to equity and part settlement of outstanding bank facilities. Thus, net debt to EBITDA moderated to 86.1 percent at end-March 2020 (3Q FY20), while net debt to equity registered below 18 percent, comparing favourably to its major peers,’ the rating firm said, adding that interest coverage has improved to exceed 4x in FY19.
Later in the year, Guinness Nigeria plans to establish a commercial paper issuance programme to refinance its maturing short-term borrowings, as well as diversify sources of funding. Even when gross debt has been fairly elevated, Guinness has reported moderate gearing metrics.
“Guinness evidences a favourable cash conversion cycle that facilitates strong cash generation and liquidity. Nevertheless, the uncertainties in the currency market has forced the company to increase inventory holding to ensure sufficient raw materials are readily available.
“Access to liquidity remains strong with over N16 billion in unutilised bank debt and $23.1 million of intercompany loans available,” the statement said.
GCR noted that it considers the brewing sector to evidence lower cyclicality, the COVID-19 crisis has elevated downside risks for the sector, given its reliance on hospitality and entertainment to drive volumes, saying it “expects Guinness Nigeria to maintain its strong market position due to its entrenched brands.”
“An upward rating movement is contingent on a sustained growth in revenue and firmer margins that translates into more stable profitability and cash flows.
“Conversely, a worse than anticipated disruption to demand from COVID-19 and/or severe weakness in the consumer market, could see earnings fall substantially.
“Furthermore, excessive debt utilisation would see credit protection deteriorate, leading to a rating downgrade,” it said.
By Dipo Olowookere
The Nigerian Exchange (NGX) Limited tumbled by 0.44 per cent on Tuesday amid panic sell-offs by investors due to weak sentiment.
The profit-taking was across the key market segments except the energy space, which closed higher by 1.06 per cent as a result of bargain-hunting activities, especially in Oando.
The industrial goods index shrank by 1.72 per cent, the banking counter depreciated by 1.21 per cent, the consumer goods sector retreated by 0.26 per cent, and the insurance industry fell by 0.03 per cent.
Consequently, the market capitalisation of the NGX crumbled by N284 billion to close at N64.156 trillion compared with Monday’s N64.440 trillion, and the All-Share Index (ASI) declined by 460.20 points to settle at 103,958.75 points versus the preceding day’s 104,418.95 points.
Business Post reports that there were 30 appreciating equities and 32 depreciating equities at the close of transactions yesterday, representing a negative market breadth index and weak investor sentiment.
SCOA Nigeria topped the gainers’ log after it chalked up 10.00 per cent to trade at N4.07, Okomu Oil also improved its value by 10.00 per cent to N488.40, as Eunisell soared by 10.00 per cent to N12.54, while SFS REIT rose by 9.97 per cent to N197.35, and NEM Insurance grew by 9.96 per cent to N13.25.
Conversely, MRS Oil lost 9.95 per cent to quote at N162.90, Red Star Express declined by 9.90 per cent to N4.55, Learn Africa moderated by 9.82 per cent to N4.50, DAAR Communications slumped by 8.33 per cent to 77 Kobo, and Veritas Kapital slipped by 7.74 per cent to N1.43.
During the session, the market participants bought and sold 542.2 million shares worth N13.6 billion in 15,561 deals compared with the 518.3 million shares worth N13.3 billion traded in 17,196 deals a day earlier, indicating a decline in the number of deals by 9.51 per cent, and an increase in the trading volume and value by 4.61 per cent and 2.26 per cent, respectively.
Sitting on top of the activity chart was Access Holdings with 44.0 million stocks valued at N1.2 billion, Sterling Holdings transacted 42.2 million equities worth N254.3 million, Zenith Bank traded 33.8 million shares for N1.7 billion, UBA exchanged 29.2 million stocks worth N1.1 billion, and FCMB sold 26.1 million shares for N313.1 million.
By Aduragbemi Omiyale
To keep its refinery running smoothly, the Dangote Refinery in Lagos has made an order for about 12 million barrels of crude oil from the United States of America (USA).
This shipment of the oil is being awaited by the facility and should land in Nigeria next month, according to the news from African Report.
It was gathered that the $20 billion Dangote Refinery looked elsewhere for crude supply after it could not get enough from the Nigerian National Petroleum Company (NNPC) Limited under the crude-for-Naira deal ordered by President Bola Tinubu last year.
The refinery is working hard to reach full refining capacity of 650,000 barrels per day in June this year.
“About 12 million barrels of crude have departed the US and should arrive in Nigeria by February,” an insider source told The Africa Report.
Officials at the plant said the facility has ramped up production to about 500,000 barrels per day, with the target of hitting the 650,000bpd mark by June this year.
The NNPC is reportedly struggling to supply 350,000bpd to the Dangote refinery from the 450,000bpd crude meant for Nigeria’s local consumption.
With its current production capacity of 500,000bpd, officials said there is a need to look beyond the shores of Nigeria for the feedstock.
It was said that the feedstock needed by the refinery daily cannot be solely supplied by the state-owned oil company, NNPC.
By Adedapo Adesanya
The crude oil market fell further on Tuesday as concerns over disruption to Libyan oil loadings eased, with Brent futures marginally down by 11 cents or 0.14 per cent to $76.97 per barrel and the US West Texas Intermediate (WTI) futures losing 9 cents or 0.12 per cent to finish at $73.08 per barrel.
In Libya, local protesters prevented crude oil loadings on Tuesday at Es Sider and Ras Lanuf ports, putting about 450,000 barrels per day of exports at risk.
A group called the Oil Crescent Region Movement demanded that the headquarters of five local energy companies be transferred to the western Libyan region that, as the name suggests, is home to most of the country’s oil industry.
However, fears of this supply disruption eased after Libya’s state-run National Oil Corporation (NOC) said export activity was running normally after it held talks with protesters.
Libya’s daily output stands at 1.41 million barrels daily, with condensate production at some 43,700 barrels daily, which puts the combined crude plus condensates output at 1.65 million barrels daily.
Also, fears of weaker demand linked to soft economic data from China and rising temperatures elsewhere pressured prices.
China, the world’s largest crude oil importer, reported on Monday an unexpected contraction in January manufacturing activity.
Official factory survey showed on Monday that China’s manufacturing activity unexpectedly contracted in January, its weakest since August 2024.
The official purchasing managers’ index (PMI) contracted to 49.1 in January from 50.1 in December, below the 50-mark separating growth from contraction.
This development will keep alive calls for stimulus in the world’s second-largest economy.
Market analysts note that US President Donald Trump’s threat to impose a 10 per cent duty on Chinese imports on February 1 to push the country to clamp down on the trafficking of the chemical precursors of fentanyl risks will expose how reliant its economy is on exports for growth.
China’s crude oil demand is also expected to be hit by the latest US sanctions on Russian oil trade, with the refineries in its region of Shandong losing up to 1 million barrels per day of crude supply.
In the US, weather forecasts indicate a warmer temperature which is also weighing on demand for heating fuels after extreme cold sparked a natural gas and diesel rally in prior sessions.
Also weakening prices, the US Dollar index strengthened on Tuesday amid fresh tariff threats from the Trump administration.
President Trump said on Monday he planned to impose tariffs on imported computer chips, pharmaceuticals and steel.
A stronger Dollar also pressured prices by making oil more expensive for holders of other currencies.
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