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.
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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.
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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.