The management and investors of Guinness Nigeria Plc are currently not smiling and that is connected to some factors that have eaten deep into the profit of the company. This was disclosed by the Managing Director of the firm, Baker Magunda in Lagos.
A far as the Guinness boss is concerned, Nigeria’s business environment has not been favourable for his company and provoking to the ease of doing business in the country.
Listing issues that have eaten deep into the company’s profit, Magunda outlined port congestion, tax reforms and decline in alcohol pricing. According to him, they have been affecting the operations of Guinness Nigeria and that the company has been burning cash to transport its products across the nation.
He added that the company is also struggling with government policies like the increased excise duties on beer and stouts, which was rose to N0.30 kobo per centilitre (Cl) in 2018 and N0.35 kobo per Cl each in 2019 and 2020.
Also, President Muhammadu Buhari-led administration had increased VAT rate from 5% to 7.5%, as well as implementing other tax reforms that have caused inflation pressure.
Governments excuse for hike in alcohol tax: The upward review of the excise duty rates for alcoholic beverages and tobacco was not targeted at local manufacturers, according to former Finance Minister, Kemi Adeosun, but aimed at achieving a dual benefit of raising the government’s fiscal revenues and reducing the health hazards associated with tobacco consumption and alcohol abuse.
But as the government increases its revenue and reduces abuse of alcohol consumption, the return on investment of alcoholic companies is being depleted. It is affecting consumers’ purchasing power, which in turn affects the bottom-line of the alcoholic beverage companies.
“The profit margin has reduced significantly. The overall pricing on alcohol has declined over the last four years. The inflationary trend has moved from 11% to 12%. There has been an increase in tariff. There is congestion at the ports, it costs the company over N700,000 to transport a container from the Apapa port to our factory at Ogba in Ikeja area of Lagos,” he added.
While investors and analysts await its full-year 2019 financial scorecard, Nairametircs had reported in October 2019 that the three-month period ended September 31, 2019, Guinness Nigeria’s gross profit was N7.9 billion, a significant drop compared to the N9.1 billion the company recorded during the corresponding period in September 2018. Meanwhile, its revenue for the 2019 period dropped by 4.2% to N26.8 billion, from N28 billion in the three-month period ended in September 2018.
Will Guinness navigate challenges? This is a tough call considering the fact that the company had been reporting a drop in profit and revenue even before the new tax reform took effect in February 2020. Aside from the tax reforms, the Lekki Port is still under construction, with no end in sight.
But Guinness Nigeria is looking to introduce new products into the market in order to stay competitive and remain relevant, as it is currently the third-largest market shareholder (22.1%) in the industry, which has International Breweries and Nigerian Breweries.
“We are not relenting, we will continue to be strategic in our thinking concerning our product line. There is the possibility that we might add new products to our product line. The spirit is the future, we might invest in spirits too. It is easier and cost less to distribute, it is one-way distribution, that is the future,” Magunda said.
(READ MORE: Nigerian Breweries goes to the retail lab)
Market rivals taking the hit too: The harsh business environment in Nigeria has been unfriendly to the bottom-line of companies operating in the alcoholic market, with companies like Nigerian Breweries spending N77.6 billion last year on advertising and marketing to maintain its 55.5% market lead. But despite the big-budget for media ads, the company recorded a profit after tax of N16 billion in 2019, compared to the N43 billion it earned in 2013 while incurring an external debt of N55 billion in 2019, a sharp increase from the N9 billion in 2013.
The story was even worse for International Breweries – the second-largest market shareholder (22.4%), which incurred more than N6 billion in advertising costs at Q4 2019, only to record revenue drop and a loss after tax of N9.1 billion in Q4 2019. The total revenue for the 3-month period ended December 31 stood a little bit above N35 billion, indicating a 5.8 per cent decrease when compared to N37.3 billion that was recorded in Q4 2018.
Just in: Lagos allows cinemas, gyms, others to reopen
In a new development, Lagos government has approved the reopening of gyms, cinemas, others.
The Lagos State Government has announced the reopening of cinemas, gyms, and other recreational centres in the state.
According to a monitored media report, the disclosure was made by the Lagos State Government, Babajide Sanwo-Olu, during a press briefing at the Statehouse, Marina on Saturday, September 19, 2020.
The governor said, they are however expected to operate at just 33% of their capacity, which is a third of their capacity, and must comply with all safety measures.
He, however, said that other sectors of the economy such as bars, night clubs, spas, public parks, event centres, and such others are to remain closed until October when the state government will make pronouncement concerning their reopening.
The Governor said, “Henceforth, cinemas and gyms are permitted to reopen as soon as possible, with a maximum of 33% occupancy, which means that there must be a minimum of two empty seats between occupied seats; and in the case of gyms, there must be constant disinfection of machines and equipment throughout the course of the day.’’
Sanwo-Olu said that it has become inevitable for Nigerians to apply caution as some other parts of the world have witnessed a resurgence of the coronavirus disease with a possibility of further lockdowns.
He warned, “Let me make it clear that if we do not continue to maintain our guard, and sustain the adherence to all required protocols and guidelines, we will find ourselves in a situation where fresh lockdowns are inevitable. The only way to avoid this is to continue to act responsibly: maintain the required levels of hygiene, through regular handwashing and use of sanitizers, wear masks in all public places, avoid non-essential public gatherings, and maintain the prescribed levels of physical distancing at all times”
Just in: Lagos approves resumption of full services for churches, mosques
Resumption of full services in churches and mosques has been approved by the Lagos State Government.
The Lagos State Government has announced the approval of churches and mosques to resume full services in the state. This disclosure was made by the Lagos State Governor, Babajide Sanwo-Olu, during a press briefing on Saturday, September 19, 2020, in Lagos.
According to a monitored media report, the government said mosques can hold their prayers 5 times daily, while churches can also resume weekly services. This is against the initial announcement, where worship centres were restricted to just one gathering weekly, after they were allowed to reopen on August 7, 2020, following the lockdown to contain the spread of the coronavirus disease.
Sanwo-Olu, however, warned that all safety protocols that had been announced by the government must be strictly adhered to.
COVID-19: Transcorp Hotel loses about N1 billion every month – CEO
Transcorp Hotels has seen its revenues ravaged by COVID-19 induced lockdowns and implementing measures to save itself from further losses.
Transcorp Hotels, owners of one of Nigeria’s largest hotel Transcorp Hilton reports it loses about N1 billion every month due to the Covid-19 pandemic.
This was disclosed by the Managing Director/CEO of Transcorp Hotel Plc, Dupe Olusola, during an interactive session on Thursday. According to her, the management of the hotel met and decided to ensure that it kept costs down by restructuring its business strategy, diversifying into asset-light business models, and reducing the workforce, among others.
Olusola further disclosed that the company had suspended further commitment to buy fixed assets and operating equipment, as well as reduced its energy consumption and maintenance costs. She also confirmed Transcorp will be cutting back on all capital investments this year and in the foreseeable future until the outlook for the economy improves.
The hospitality sector has been one of the hardest-hit since the Covid-19 broke in late February. Data from the National Bureau of Statistics also reveal the sector contracted by as much as 40% in the second quarter of 2020, officially falling into recession.
Nairametrics participated in the stakeholder’s session and noted a few critical remarks from the interview.
Below is the excerpt of the interview session:
How much has COVID-19 eaten into the fabric of Transcorp Hotels?
We had a drastic decline of over N9 billion. In March alone, we witnessed a N456 million loss. We have to remember that in March, there was a partial lockdown when everyone was trying to figure out what was happening. We were at N1.03 billion loss in April alone and this has continued to be the story every month. In June, we dropped by about N840 million.
How will this development (loss) affect your staff strength?
We struggled to ensure that we would not ask people to go initially, that was our priority. We paid staff that did not work during lockdown 50% of their salaries and the ones that worked then were paid full salary. To keep the business running, we definitely have to let go of at least 40% now.
We engaged the staff Unions, both the Junior and Senior staff, before the implementation of that. We will ensure that employees are properly taken care of. The occupancies we have now are below 30% and with that, it’s impossible to have everyone around.
What is important to us is that we must ensure we are able to keep the hotel running as a national asset, because it has been in existence for over 30 years.
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We have ensured that we keep as many jobs as we can within this time frame, so this is an opportunity for us to engage the media and carry you along before such exercise. We have engaged actively with our employees and other key stakeholders. At the occupancy level that we are seeing, it is impossible for us to sustain the employees that we have to keep our doors open.
Precisely, how many will you lay off?
It is definitely a great burden to even consider a lay-off but we don’t have a choice but to keep the business afloat. We have over 1,000 staff and it appears we will not need more than 400 staff to ensure we keep the hotel running. What is happening is beyond everybody and it is just a situation we have found ourselves in.
What is your outlook for 2020, any hope of returning to the pre-COVID era?
We expect to get to the pre-COVID era by 2024 globally, because it requires the gathering of the people in preparing for events, etc. The new normal is real. We expect things to go back to what they used to be in Nigeria by 2024 also. We are not expected to do more than 30% of our occupancy this year and that is significantly low, and by this time next year, we don’t expect to see anything more than that. So, this is our trying time.
Strategy to sustain Balance Sheet before the end of 2020
We are a hotel business, the food, room and the events we hold are our sustainers. We are definitely going to end at a loss in 2020. As I said, COVID will still be around in 2024. We will try as a business to be innovative, to look at different ways. We are reporting losses of almost N1 billion on a monthly basis and this is significant to us. We hope they can come up with some vaccination to help reduce the impact of the pandemic so that businesses can begin to pick up.
Any palliatives from the government to hotels?
Governments across the world have given palliatives to hotels, but here there is no such package for big hotels in Nigeria. We have engaged at all levels of government on payroll support, tax rebate, support for employees, actively and widely as possible. Yet, these have not yielded any support, unfortunately. This is really why we have gotten to the point of disengaging our own staff. We have not seen any support from the government to actually help us.
How do you aim to restructure your loans and are there plans to raise funds?
This year is really just about losses. We have met with our stakeholders and lenders to work out how we can restructure our loans, considering some palliatives CBN brought on board like interest rate of 5%. We met the Bank of Industry (BOI) to get interest rates on our loan reduction. Some of these got a couple of positive responses. We are also considering raising funds through the right issues. We are raising N10 billion in order to pay off some of our existing obligations.
How will virtual tools affect your business model and future plans?
We are working round the clock to bring in solutions in line with the new normal to our guests and customers. How do we provide what they are looking for? How do we provide physical and virtual conferencing? We have also come up with Drive-in Movie Cinema, among others. We are going to ensure we run asset-light strategies to bring in new initiatives that can continue to help us remain standing in the business.
On our future plans, we have suspended our expansion plans. For instance, we initially planned to set up hotels in Port-Harcourt, Rivers State, which has been suspended for now. Also, we suspended further commitment to buy fixed assets and operating equipment as well as reduced our energy consumption and maintenance costs.
Bottom Line: The hotel faces a tipping point and as things stand survival is what is its priority.
- To do so the hotel will have to make tough decisions some of which as job cuts, reduction in overheads, and suspension of capex related activities.
- This will be a very painful restructuring process for the hotel group but it appears this is the only way it can survive.