Guinness Nigeria Plc has started its 2021 financial year with a loss, just like the company did in 2020. However, this time, the value of the loss adds up to N841 million for the opening quarter. In 2020, it was N370 million, which set the tone for what eventually degenerated into a truly horrible and uninspiring financial year. A year that saw loss position in the aggregate 12 months period peak at N12.6billion.

READ: Brewery sector: A quarter to forget

READ: Guinness’ parent company expects alcohol sales to improve as restaurants and bars gradually reopen

Apparently, all that could possibly go wrong with Guinness, did go wrong. From what in retrospect, turned out to be an over-ambitious outlook at the start of the year, to the effects of not giving immense attention to controllable costs, rise in inflation with its resultant pressure in decreased consumer spending, and the crippling effects of the unprecedented COVID-19 pandemic; no company could have asked for worse.

However, the horrendous performance was not peculiar to Guinness Nigeria alone. The results from its competitors, such as the International Breweries Plc, and Nigerian Breweries Plc, amid appalling industry figures recorded, proved that 2020 has been a tumultuous year indeed for all companies operating in the brewery manufacturing sector.

READ: No trophy for International Breweries after bland Q2 results

The analysis of FY 2020

How poor was the 2020 FY performance of Guinness Nigeria and what can be inferred from its Q1 2021 reports? For a company in the habit of declaring dividends especially after the N5.5billion profit in 2019, how did the company move from that profit margin to a loss of N12.6billion just 12months after?

• Profit declined by 129.1% from N5.5billion Profit after Tax in 2019 to N12.6billion Loss after Tax in 2020. This Steep decline was evident in all arrears from top-line to bottom.
• Gross profit down by 16.9% to N33.33billion in 2020 as against N40.13billion reported in 2019
• Revenue plunged 21% to N104.41billion in 2020, from N131.5billion generated in 2019.
• Cost of sales did show some improvement, moving from the N91.4billion expended in 2019 to N71.1billion in 2020 – a 22% decrease.
• Administrative cost continued the rising trajectory to N14.3billion in 2020 from N9.9billion in 2019.
• Finance cost rose to N4.5billion from N2.6billion in 2019, while finance income declined from N750.9million to N301million in 2020.

READ: PZ incurs N1 billion in exchange rate loss 

Speaking on 2020 results, Mr. Baker Magunda, Managing Director/CEO, Guinness Nigeria Plc said,

“The last quarter performance of fiscal 2020 was significantly impacted by restrictions due to COVID-19, exacerbating the already challenging economic environment. Closures of on-trade premises (bars, lounges, clubs, and dine-in restaurants), which represents the major part of the consumption occasion for our products and bans on celebratory occasions, impacted sales.

“Demand was also impacted by reduced consumer income, unemployment concerns due to the shutdown of a large number of businesses, and increases of VAT and excise throughout the year.”

READ: R.T. Briscoe declares N618.9 million loss in H1 2020, as sales of vehicles fall 

Magunda further explained that, “Distribution was impacted by the ban of inter-state, and in some cases intra-state travel. Although, Management worked diligently with regulatory authorities to minimize the impact, this hampered our distributors’ ability to restock and have our brands available for purchase.”

The analysis of Q1 2021

In the 2021 financial year, the task before the company is to drive its strategic objectives to bring the company back to profitability. The Chairman, Mr Babatunde Abayomi Savage, recognizes that this would be no stroll in the park, as he affirmed that despite predictions that the coming year will be challenging globally due to the new normal, “we believe we have experienced our full share of the impact and are now geared to go back to profitability.”

READ: MTN, Airtel, Glo, other Telcos’ operating costs drop to N1.756 trillion in 2019

The opening quarter for 2021 (July-September) saw improvements in sales volumes on the back of eased restrictions from the COVID-19 necessitated lockdown.

• Revenue posted is N30.02billion, 11.64% increase from the N26.89billion recorded in the corresponding period of 2020.
• However, Cost of sales worsened by 21.1%, increasing from N18.9billion in Q1 2020 to N23.01billion in Q1 2021.
• Marketing and distribution expenses, as well as administration expenses, showed marginal reduction, depicting management interest in controlling these variables.

READ: Q1’20: Okomu Oil’s result is more proof that essentials always win

Bottomline

Generally speaking, results for the opening quarter show signs of improvement, but the tax component was the primary factor responsible for masking the progress obtained in Q1 and eroding promising signs.

With the gradual re-opening of its previously closed company buildings in Benin City, and the shift in focus from the largely underwhelming lager segment to investing more in spirits, it will be interesting to see how this impacts volumes and revenue in subsequent quarters, despite the apparent economic conditions.

The Nigerian Oil and Gas sector has been the lifeline of the economy over the years and this has been a source of concern to both local and foreign stakeholders.

In this interview with Dr. Jide Agunbiade, Director, National Oilwell Varco, Houston, Texas, the largest Oil and gas equipment manufacturing company in the world, he shared his views on the nation’s dependency on the sector, the Petroleum Industry Bill among other industry issues. Excerpts:

How would you assess the Nigerian petroleum industry?

An assessment of the Nigerian petroleum industry reveals that the NNPC is one of the inefficient government institutions in Nigeria, with heavy political interference, ambiguities, corruption and nepotism. Recent investigations and probes into government corruption in Nigeria reveals that a substantial part of government corruption, originates from the activities that relate to the management of the oil and gas proceeds, supposed to be channeled towards the growth and development of the nation.

READ: NNPC says local operators must improve capacity to achieve low cost of oil production

Despite the monetary resources remitted to its coffers, NNPC has since been facing challenges in funding its upstream operations and obligations. NNPC has also failed to effectively manage the downstream sector, which is characterized by moribund refineries, scarcities, inconsistent and uncompetitive fuel prices. Despite the abundance of petroleum commodities in Nigeria, the country’s largest import is from the petroleum products, which increases the supply and reduces the value of the Naira in the foreign currency market.

What about its international goodwill?

Consequently, NNPC has lost its international goodwill, because of its inconsistency and political interferences, and this has caused doubt and high business risk in the Nigerian oil industry. Though an oil rich country, Nigeria is the world headquarters of poverty, which explains further the poor management of the oil resources in the country.

READ: DPR reveals 4 major areas of focus for downstream operations of oil and gas sector

Furthermore, in recent times the Nigerian petroleum industry has also been negatively impacted by a number of external factors such as a surplus of global crude supply leading to global oil price decline, competition from renewable energy, the devastating impact of the Covid-19 pandemic on the global oil economy, as well as the 2020 fracturing of the OPEC+ alliance (with Russia) leading to a sharp decline in oil prices in 2020. Many of these challenges though near to medium term have the potential to continue for the longer term.

In September 2020, President Muhammadu Buhari proposed the scrapping of the NNPC and the creation of NNPC Limited, in the new Petroleum Industry Bill 2020 submitted to the National Assembly.

READ: Non-Performing loans in Nigerian Banks rise to N1.21 trillion in H1 2020

The hope is that with the proposed scrapping and commercialization of the NNPC, this will mark a turning point for the petroleum industry in Nigeria and that the challenges that the sector has faced for many years will be addressed and remedied.

Former President Obasanjo decided to privatize the nation’s refineries but was reversed by former President Yar’adua. Today, the nation has spent hundreds of millions on them. If you are the President, how will you address the issue?

More than 55 years after Nigeria started producing and exporting crude oil and gas, the government-owned refineries — located in Port Harcourt, Kaduna and Warri, are sitting idle. Prior to their shutdown, the refineries were performing minimally due to years of neglect, mismanagement and pillage, leaving the country almost wholly dependent on imported petroleum products. Claims from successive governments, of turnaround maintenance and rehabilitation of these refineries have yielded no positive results.

READ: Lekoil Limited seeks refund of $450,000 after loan scam involving Qatar firm

The Government has deviated from her traditional role of providing social services, law and order etc., to conducting businesses. She has channeled her funds and energy into business ventures such as running the refineries which have led to spending hundreds of millions with no significant change. Since the de-privatization of the sector by Yar’adua, the nation has suffered a decline in oil-revenue despite the amounts been spent on running these refineries.

If you were the President of Nigeria, what will you do?

Relinquish government control of the operation and management of the nation’s refineries by divesting a majority of its 100 percent equity to competent, resourceful and experienced independent private refining firms with the requisite capital and technical expertise needed for the development and maintenance of the refineries.

I will also establish a governmental agency that would have a board made up of external and independent stakeholders, that would govern and regulate the activities of these independent private refining firms.

Privatizing the refineries, the government and the nation as a whole stand to gain several advantages which include but not limited to improvement in the efficient allocation of resources, for mobilizing investment and for stimulating private sector development; reduce corruption and parasite mentality of Nigerians towards government-owned sectors and infuse capital and modernize technology in our refineries, many of which have not seen any improvement for years among others.

What is your take on the PIB, have you observed any gap?

A major gap in the PIB 2020 is that the government’s continued control of the new NNPC raises concerns of a likely continuation of old practices such as corruption and weak accountability. Also, the PIB 2020 does not specifically require the government to sell shares in NNPC Limited and this may stifle the much-needed fundraising required for the growth of the sector. Furthermore, unlike previous reform proposals, the PIB 2020 does not set a specific deadline for when the privatization/commercialization will be completed.

READ: Oil: International oil companies scale down on Nigeria operations 

Also, the passage of the PIB is being pursued without matching the goals and vision of the PIB and the country’s energy policies. Without linking the PIB to a clear energy policy direction that responds to the troubling issues of epileptic power supply, the security of local consumption of gas, reform of the downstream sector and refineries, enhancement of local content, linkages between the Oil and Gas (O&G) sector and local economy in order to unleash the industrialization potentials in Nigeria, Nigeria may never be able to harness the full development potentials in the O&G industry. And for so long, it is unlikely to free the sector from the instability that threatens the revenue peace in the Niger Delta.

READ: FG discovers crude oil in north, says there’s more 

What is your take on the alleged unbundle of the NNPC under the draft of the new PIB?

I believe the unbundling of the NNPC would make for a clear separation of powers, increased statutory and sectoral funding, operational autonomy, transparency in appointments and dismissals, and insulation from political influence, within the newly established governmental entities.

If unbundled, what structure do you suggest should be implemented to further block holes in the sector?

I believe the structures/new entities proposed by the PIB 2020 (as discussed above), should be adequate to block holes in the Nigerian oil and gas sector.

Globally, one key structure that helps block holes in the oil & gas sector is sustainable finance. International experience shows that NOCs need flexible, reliable options for accessing capital while maintaining checks and balances that prevent them from becoming states within the state. Of particular importance is developing a workable revenue retention model that allows the kind of medium and long-term planning needed for effective commercial operations. This can be achieved by publicly listing the NOC shares. If managed well, public listings can enforce market discipline. They have encouraged innovation and efficiency in Petrobras (Brazil), Statoil (Norway) and KMG (Kazakhstan).

Explore Data on the Nairametrics Research Website

As a case study, Brazil partially privatized Petrobras in 1997 with the ratification of Law 9.478. At the same time, the state established a regulatory body, the National Petroleum Agency, to guide Petrobras through its transition to a mixed public-private entity, and in particular, to assist in the sales of its shares abroad (notably on the New York Stock Exchange). Proceeds from the sales then went back into the sector, principally in offshore drilling and exploration.

This exercise served Petrobras’s stated goal of increasing revenues in three ways. First and most obvious, the share sales raised cash upfront. Second, compliance with stringent U.S. stock exchange reporting requirements incentivized better, more efficient management, which in turn reassured investors when Petrobras went out to raise capital. Third, the share sale helped reduce fuel subsidy costs, which were ballooning Brazil’s public debt and inflation. By creating new and binding obligations to maximize Petrobras’s profits for shareholders, Brazil gave itself a fresh legal argument against entrenched interests around subsidies. Phaseouts were then done gradually to reduce political fallout, with price controls on products with smaller market shares (jet fuel, lubricants and kerosene) reduced ahead of the big gasoline and diesel subsidies. Within a period of years, Petrobras’s production levels, proven reserves and revenues increased substantially, and the company has further enhanced its skills and reputation as a world leader in deepwater exploration and production.

READ: Lawmakers want Oil firm investigated for flouting local content laws

The Bill provides for a 10% Host Community Fund for inhabitants of communities hosting oil and gas resources but failed to disclose how the fund will be sought. Do you think this will create issues in the future?

The PIB 2020 states that the funds will be sought from contributions received from E&P companies operating within the community. The issue I foresee arising is how the payment of the 2.5% of the actual operating expenditure of these E&P companies will be enforced, in terms of if the E&P companies can be made to accurately disclose their actual operating expenditure for the preceding year. However, this may be resolved by ensuring they submit their audited accounts for the preceding year for confirmation.

That being said, the creation of PHCF is arguably not the solution to the Niger Delta crisis and it is indeed incredulous that so much agitation has arisen in this regard. Prior to the proposal and subsequent inclusion of the PHCF in the PIB, various government intervention has been put in place in addition to the allocation of derivation, such as the Niger Delta Development Board, the Oil Mineral Producing Areas Development Commission (“OMPADEC”), the Niger Delta Development Commission (“NDDC”), and the Ministry of Niger Delta Affairs (“MNDA”). Rather than identify and address the root cause of why the various government interventions in the past have not yielded the desired result, there is a shift towards either placing an additional layer of responsibility on oil companies and/or creating another layer of institution which would likely be bogged down with the same problems plaguing the existing institutions.

READ: First E&P seals $901m deal with Malaysian firm, Yinson

Restructuring of an institution like NDDC such that a large portion of the funds accruing to them can be channeled towards creating a PHCF or a Fund with similar characteristics should be considered.

It has been suggested that a good way to prevent mismanagement of such a Fund would be to involve international agencies such as the United Nations (“UN”) in its management.

Such a partnership initiative would reduce the layer of corruption by ensuring that disbursements from the Fund are utilized for the specific community or regional development project it is earmarked for. The Federal Government also has a major role in ensuring that it meets its funding obligations as and when due.

Bill also allows the Agency to accept gifts of money or other property upon such terms and conditions as may be specified by the person or organization. Will this not affect the integrity or accountability of the agency?

This is a provision of the PIB 2018 (this provision may also be replicated in PIB 2020). The provision is replicated below –

(27) The Commission may accept grants of money or other property upon such terms and conditions as may be specified by the person or organization making the gift provided, such gifts are not-

1. inconsistent with the objectives and functions of the Commission under this Act;
2. accepted from persons or organizations regulated by the Commission. (2) Nothing in subsection (1) of this section or in this Act shall be construed to allow any member of the Board or staff of the Commission to accept grants for their personal use.

From the above exceptions in a) and b) as well as (2), I believe these clauses adequately limit the ambit of the Commission to accept gifts and also secure the integrity or accountability of the Commission.

What is your take on a modular refinery?

Modular Refineries are ideally suited for remote locations and are viable for investments by Public-Private Partnership (PPP) as a source of rapid production of primary fuel products and raw materials for Petrochemical Downstream Industries.

Establishing a crude oil refinery requires approval from the Department of Petroleum Resources (DPR) in Nigeria. Investors may need to apply for oil block allocation or partner with the government at different levels to guarantee investment and feedstock for the production plant.

No doubt, Nigeria’s refining sector holds great prospects for the future. There have been some government initiatives to increase local refining capacity to offset the continued growth of importing finished products for growing consumer demand. The goal is to provide lower-cost, steady supply of fuels and products on a local level.

This is very commendable as it will go a long way in increasing local security of supply for transportation fuels, local electricity as well as sustained use of LPG cylinders for cooking and heating fuel obtained in-country, benefiting from lower regional pricing, transportation, and other incentives such as local jobs creation.

Nigeria’s exchange rate at the NAFEX window continued to remain stable against the dollar to close at N386/$1 during intraday trading on Monday, October 26.

Also, the naira maintained its stability against the dollar, closing at N463/$1 at the parallel market on Monday, October 26, 2020, as currency traders resume business activities after state governments relaxed the curfew initially imposed to curtail the widespread violence that followed the hijacked #EndSARS protests.

READ: Naira maintains stability in forex markets, dollar supply improves despite curfew

This is also as businesses shut down due to the outbreak of violence in Lagos and some parts of the country during the protests against the special anti-robbery unit (SARS) and police brutality by the Nigerian youth.

Explore Data on the Nairametrics Research Website

Parallel market: According to information from Abokifx – a prominent FX tracking website, at the black market where forex is traded unofficially, the Naira remained stable against the dollar to close at N463/$1 on Monday. This was the same rate that it exchanged for on Friday, October 23.

READ: Exchange rate maintains stability as BDCs expect another dollar supply from CBN

• The local currency had strengthened by about 7.8% within the one week in September at the black market, as the CBN introduced some measures targeted at exporters and importers, in order to try to boost the supply of dollars in the foreign exchange market, and reduce the high demand for forex by traders.
• The CBN has sold over $500 million to BDCs since they resumed forex sales on Monday, September 7, 2020. This was expected to inject more liquidity to the retail end of the foreign exchange market and discourage hoarding and speculation.
• However, the exchange rate against the dollar has remained volatile after the initial gains made, following the CBN’s resumption of sales of dollars to the BDCs.
• The President of the Association of Bureau De Change Operators, Aminu Gwadebe, said he expects the impact of the extra liquidity in the market to be gradual.
• Despite the drop in speculative buying of foreign exchange, the huge demand backlog by manufacturers and foreign investors still puts pressure and creates a volatile situation in the foreign exchange market.

READ: Naira maintains stability at forex markets as dollar supply rise by 57%

NAFEX: The Naira remained stable against the dollar at the Investors and Exporters (I&E) window on Friday, closing at N386/$1.

• This was the same rate that it exchanged for on Friday, October 23.
• The opening indicative rate was N386.29 to a dollar on Monday. This represents a 29 kobo drop when compared to the N386 that was recorded on Friday.
• The N393.11 to a dollar is the highest rate during intraday trading before it closed at N386 to a dollar. It also sold for as low as N382/$1 during intraday trading.

Forex turnover: Forex turnover at the Investor and Exporters (I&E) window declined significantly by 81.14% on Monday, October 26, 2020.

• According to the data tracked by Nairametrics from FMDQ, forex turnover dropped from $197.42 million on Friday, October 23, 2020, to $37.23 million on Monday, October 26, 2020.
• The CBN is still struggling to clear the backlog of foreign exchange demand, especially by foreign investors wishing to repatriate back their funds.
• The drop in dollar supply after the previous trading day’s huge increase, reinforces the volatility of the foreign exchange market. The supply of dollars has been on a decline for months due to low oil prices and the absence of foreign capital inflow into the country.
• As part of the measure to check forex abuse and check illegal transactions, the CBN last month directed the freezing of accounts of about 38 companies.
• The average daily forex sale for last week was about $169.93 million, which represents a huge increase from the $34.5 million that was recorded the previous week.
• Total forex trading at the NAFEX window in the month of August was about $857 million, compared to $937 million in July.
• The exchange rate is still being affected by low oil prices, dollar scarcity, a backlog of forex demand, and a shaky economy that has been hit by the coronavirus pandemic.