Wed01172018

Last updateMon, 07 Jul 2014 9am

Back You are here: Home Business Stock Analysis Guinness Nigeria: Not yet a willing horse

Guinness Nigeria: Not yet a willing horse

WHEN the shareholders of Guinness Nigeria PLC last met on November 2, 2012 to review financial year June 2012, Board Chairman was emphatic that the times remain very trying for the beer industry. Customers, he said, were hard hit by the partial removal of subsidy in January;  Naira depreciation  and higher inflation rate.  Thus they had less to spend and beer was naturally one of those products many chose to do without.

The resultant effect, he said, was that market sales volume dropped by 7.4 per cent while the drop in value was only by 0.6 per cent apparently because of the industry's ability to recover some of the pressures on cost from the same depressing factors and security concerns across the nation which impacted negatively on distribution and other costs.

The point to note though was that Guinness did not seem to have accepted its fortunes and decided to wait for the wind of change in the macro economy. It decided to make a change at the helm and take the battle to the market from more product segments.

Last July, Guinness once again appointed another Nigerian to head the company as Managing Director. The last one so appointed was more a decade ago and it was as if the Board was saying it will take a local hand to roll up the sleeves and ride the new challenges.

Naturally, such a man must have to be a marketing man. But then, because beer brewing is about chemical engineering, it would help too if such a person happened to know a thing or two about this field.

The man they finally found was more or less an outsider from the Guinness Nigeria perspective but,  certainly, more than qualified to do the job. Mr SeniAdetu, thus became the managing director last July with an intimidating number of years in marketing  and indeed, brewing. Armed with a first degree in chemical engineering and an MBA in Marketing, all from the University of Lagos, he had over the years served as commercial director, Nigerian Bottling Co PLC; MD, Ghana Guinness and group managing director, East Africa Breweries.

Not bad at all because right now, as per directors profile in 2012 annual report, he runs Guinness Nigeria assisted by a non-Nigerian fellow director, MS Lisa Gillian Nicols, the commercial directorunder the watchful eyes of Guinness veteran Babatunde Savage as Board chairman after retiring as deputy managing director in 2009.

Just before he took over though, the new ball had been arrange in the centre spot for him to play. Guinness Nigeria's first salvo was the launch of Harp Lime in December 2011 followed by Dubic extra lager and Malta Guinness low sugar in April 2012.

So, how has it been like in the last six months to December 2012? Simple: Not yet eureka but no harm in giving it more time to cook and cool down. According to the interim figures released by the company recently, turnover is still managing to grow but not aa pace that is able to keep up with cost pressure. To make matters worse, income from other sources eased within the period leaving core business revenue to keep the flag steady. Guinness Nigeria's finance income dropped by 52.3 per cent to N104.2m ahead of 37.7 per cent decrease too in other income to N367.7m from N590.2m.

On the other hand, core business revenue grew by 4.53 per cent to N65688.7m from N62842.9m hence with the drops in other sources of income, total income for the six months came to N66160.6m,up 3.94 per cent on N63651.4m by December 2011.

Given the background painted by the board chairman at the last AGM, this perhaps looked encouraging except that all cost heads, except distribution, took relative wings. Flying ahead of all was cost of sales which rose by seven per cent while generating almost half of that as growth in turnover. It closed December 2012 at N37157.7m compared to N34725.7m previously.

On top of that, administration cost ended with 5.83 per cent increase to N4947.9m from N4675.3m while advertising and promotions bill rose by 5.52 per cent to N5658.5m compared to N5362.4m by the first half of 2012 financial year. Surprisingly distribution costs grew by only 0.82 per cent to N7099.2m from N7041.4m.

Then, finance charges dropped the bombshell. It almost tripled to N1857.3m from N643.7m. This came to 188.5per cent increase which was not too surprising. After all, even though Guinness Nigeria reduced more costly overdraft by 54.3 per cent to N2252.3m from N4928.9m, it borrowed a lot more money from longer term sources. It raked in N2563.8m in borrowings, up 187.6 per cent on the paltry N891.3m it so raked by the same time in 2011 financial year.

Thus, the new man at the helm has not succeeded in growing the company's bottom line. In fact, it instead took a dive during the first six months he spent on the saddle. According to the interim figures, the margin on overall income of the company came to 14.2 per cent as against 17.6 per cent by December 2011 and 16.6 per cent by the full year to June 2012.

Obviously, central to building up the bottom line is the issue of liquidity management. For now, effective hands on looks impossible because Guinness Nigeria PLC can only do that for now by checking its own appetite for expansion or innovation. In financial year 2011, N12215m was expended as capital expenditure. This was almost doubled in year 2012 as the outlay stood at N23323m, up 91 per cent on the previous year's figure.

This inherited spirit still reigned supreme in the first six months of 2013 financial year even with the new man in charge. It only slowed down a little because by December 2012, fixed assets depreciated value was N87716.1m. This was 16.9 per cent higher than the June 2012 closing figure of N75956.3m. In other words, billions went into expanding or buying new fixed assets and thus, held much of the cash generated within the six months.

Apart from the leap in borrowings, stocks were drawn down by 1.22 per cent to N14336.4m; long term debtors owed 15.2 per cent less at N442.8m; trade payables rose by 30.4 per cent to N38624.2m within six months and corporate tax liabilities rose by 27 per cent to N38624.2m. Yet, closing cash balance dropped to N4350.6m from N4778.3m. That is, by 8.95 per cent on the level clocked by June 30, 2012 and handed over to the new square peg in a fitting squarehole, Mr Adetu.

No doubt, patience even in assessing is needed now. In the first place because, if financial year 2012 half year figures were anything to go by, the bulk of the year's income and expenses were yet to flow because the majority were earned or paid more for in the second half.

For example, revenue from core business in 2012 was only 49.8 per cent in by the first six months of that year. So also was cost of sales (49.4 per cent); advertising and promotions bills (48.9 per cent); and administration cost (48.9 per cent). In other words, take actions to either reduce expenditure out flow without affecting efficiency and business generation, and year end 2013 could be showcasing a different set of figures come June 2013.

However, finance charges will be more problematic in the months ahead if 2012 trend hold too. By December 2011,  finance charges was only 30.7 per cent of full year figure and so, with first half of 2013 already double, the main headache ahead will be how to keep the creditors happy.

At the same time, according to the figures, dividend payable still stands at N5611.4m, 26 per cent up on levels by December 2011. Pay that in the second half and you will still have to shop for more than a billion to sustain the smile on the faces of all shareholders.

In that case, Mr Adetu may be a square peg in a fitting square hole, he still needs time to learn how to take charge of Guinness Nigeria PLC and make it behave like a true willing horse in spite of the challenges posed by the Nigerian environment and economy.

Social Menu

Wrapper