Nigeria: Guinness struggles to refinance USD 61 million debt

Guinness Nigeria Plc, Nigeria’s third-largest brewer, struggles to refinance its USD 61 million debt due to a lack of foreign currency in Africa’s most populous country. “Foreign exchange is a big concern for us,” Guinness’s Finance and Strategy Director, Stanley Njoroge, disclosed during an earnings call on Friday.

The brewery reported this week an annual pretax loss of NGN 17.07 billion (USD 45 million) induced by write-downs and COVID-19 induced disruptions. Operating profit was negative with NGN 12.83 billion (USD 33.6 million) and net finance costs climbed to NGN 4.24 (USD 11 million).This caused outstanding debt to climb year-on-year from NGN 20 (USD 53 million) to NGN 23.2 billion (USD 61 million) in June 2020.

The net debt/EBITDA ratio went up to 1.23 which is significantly higher than last year’s 0.8 and which is also out of the target range of 0.5-1.0. However, the management also stressed the fact that “overall capital structure remains strong despite dip in EBITDA.”

Speaking on the announcement, 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 represent 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,” Magunda explained.

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

The company however revealed that its reaction to the challenges presented by the COVID-19 lockdown in Q4 was centered around reducing risk to the business by focusing on cash delivery, reducing distributor inventories, and fast-tracking the ongoing distribution transformation project for efficient sales operations. This focus ensured a reduction of trade receivables by 88% over same period last year.

“We also focused on cost management by reacting to the drop in demand by reducing operations for a month. Agile actions taken in the period impacted by COVID-19 complemented the work already undertaken throughout the year to reduce Cost of Sales by year end,” Magunda said.

“Going into the new fiscal year, we are conscious of the continued challenging operating environment with double-digit inflation and pressured consumer income spending. However, we believe the focus we have put in optimising our route to consumer, reducing credit risk and managing cost control will position us to emerge even stronger from the current crisis. We remain confident about the execution and resilience of our Total Beverage Alcohol strategy as a key driver of sustainable growth in the market”, he added.

Beer production in Nigeria amounts to about 20 million hectoliters. Clear market leader is Nigerian Breweries, which belongs to Heineken, with 11 production sites in the country and a market share of about 55% in 2019. The company has struggled for growth over the last few years (, 15.8.2020). In contrast, the number two in the market, International Breweries which held about 23% of the beer market in 2019 is catching up. Last year the brewery overtook Guinness in size which holds 22% of the domestic sales. International Breweries which is since the purchase of Johannesburg-based brewing group SAB Miller in 2016 part of the world largest brewing group AB InBev opened last year a new USD 250 million brewery near Lagos, Nigeria  (inside beer, 19.2.2019)which  will be extended in stages for another USD 150 million in the coming years.

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