Guinness Nigeria Plc battles gloomy days as it continues to record forex losses likely to hamper its future dividends – in view of the current reality, ENigeria Newspaper sources revealed that Guinness may commence mass sacking of staffers staff anytime soon.
As Nigeria continues to battle an unstable forex market along with fuel subsidy removal, more multinational companies are exiting the country with others posting huge forex losses which have impacted their share existence.
The announcement of floating of the naira or currency unification by the central bank of Nigeria (CBN) was one policy many Nigerian analysts predicted could spell doom for businesses across the country, but the situation reached an all-time apprehension when Glaxosmith a big pharma company announced its exit from the Nigerian market days ago, citing unavailability of forex to process its international transaction as key factor undoing its business in Nigeria.
Other top companies affected by faulty government policies include Dangote Group, MTN, Cadbury, and Airtel, among others.
The current reality according to data studied by ENigeria Newspaper suggests that Guinness Nigeria Plc one of Nigeria’s largest breweries may shut down operations soon if proper care is not taken.
In its just released 2023 full-year results for the period ended June 2023, Guinness Nigeria Plc reported a massive loss after tax of N18.1 billion.
The last time it reported a loss this wide was in the Covid year of 2020 when it reported a loss after tax of N12.5 billion.
Unlike in 2020 when the loss was attributed to Covid-19, this time Guinness appears to be facing a multi-hydra-headed set of challenges. We will focus on a few.
Firstly, its customers are currently facing lower purchasing power due to higher inflation and tepid economic growth. Don’t forget that Nigeria is currently grappling with a double-digit inflation rate made worse by the removal of fuel subsidies.
While the company may have thought it maneuvered its way from the mucky waters after it reported a massive profit in 2021 recent reality points to gloomy days ahead for the popular brewing company which ENigeria Newspaper understands may begin to lay off its staff soon.
In order to forestall a repeat of its 2020 experience, ENigeria Newspaper reports that Guinness had to aggressively sell its value brands, especially its spirits division which grew by 36% year-on-year. It has also relied on price adjustments to bump up sales.
But while it managed to grow revenue by 11% YoY, it has struggled to contain costs.
During this year, OPEX gulped 70% of gross profits as against 67% a year earlier. On an absolute basis, the cost of sales and operating expenses was N209 billion versus N185 billion same period in 2022.
Despite a surge in cost, Guinness still managed to generate operational profits.
In business, there are things you can control and others that are just out of your control.
For Guinness and most Nigerian companies, the exchange rate has been out of their hands for years. While the real cost of transaction is market reflective, the Central Bank has kept the book entry of cost artificially low.
However, with the unification of the naira, companies like Guinness now have to revalue the foreign currency obligations using the new rates leading to a massive exchange rate loss.
Nairametrics reports that the company reported an exchange rate loss of N49 billion wiping off the entire operating profit of N23 billion it had generated.
While the losses can be considered as paper losses, the impact will be felt on Guinness’s cash flows whenever it starts to repay the loans.
Guinness has a related party dollar loan of $22.5 million which means the naira equivalent is now N17.9 billion compared to N9.4 billion as of December 2022.
The company also has letters of credit related loans of about $33.8 million, EUR 18.8 million, and GBP 2.9 million at the end of the year.
Trade and other payables denominated in forex also amount to $48.1 million, EUR 245,000 and GBP 5.5 million.
These loans will cost the company more in the coming quarters and unless it is able to restructure the loans, achieving profitability will be a struggle.
It could also raise prices to increase revenues, but this will impact volumes and push customers to other brands.
This leaves Guinness with the best-case scenario of raising additional capital or getting an additional bailout from its parent company.
Despite the challenges it faces, the company defied all odds and declared dividends ostensibly out of retainer earnings. It can do this because it has cash.
It had cash of N92 billion and is expected to pay off dividends of N15.6 billion this year.
Guinness generates enough cash to sustain dividend payments, however, with just over N7 billion left in retained earnings, dividends will either have to be suspended or paltry.
How this will affect its current share price, will be a matter of time.
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