The main reasoned behind the planned export of Guinness’ Stout and Orijin is becoming glaring as the company has just released its audited half year result showing it recorded a net loss of NGN2 billion.
This is a big fall of -126% in net profit when compared to NGN7,7 billion bottom line for the same period in 2015. A major hole apparent in the financial result as released is its cost of sales.
Gross revenue for the period was only down by 14% to NGN101 billion compared to NGN118 billion. Guinness then recorded a 72% fall in its operating profit of NGN4 billion compared to last year when its operating profit was NGN15 billion. This means cost of sales was NGN97 billion. This is a major hole that must be plugged should the company has any plan of recovering fast from losses.
Guinness Nigeria also reported that it is restructuring, the exercise is also costing more than its loss for the period. Last year, the company spent NGN1.1 billion on the process, this year, it has so far expended NGN2 billion on the said restructuring.
As a going concern, Guinness Nigeria would have to raise more capital either through selling bonds or get more equity investors as its current ratio is in the negative. Total current asset is NGN47 billion while its current liabilities is NGN67 billion as at the end of the period. This means its current ratio is 0.70:1. (Current ratio is a comparison of current assets to current liabilities, calculated by dividing your current assets by your current liabilities. Potential creditors use the current ratio to measure a company’s liquidity or ability to pay off short-term debts).
Total assets at the end of the period is NGN136 billion versus its total liabilities of NGN96 billion. The company’s total loans and borrowing is NGN22 billion and it is also owing much to its creditors as total trade payables NGN37 billion. It debt profile to creditors has still not change much, the company owed them NGN31 billion same period last year.
Analysts have overtime evaluated Guinness growth and competitive strategy as unsustainable. On one hand, you have a recessing economy that has punished evry brewer, on the other hand, you have a fierce competition between the company and a bigger rival, Nigeria Breweries (Heineken) and other breweries in regional positions has further weakened its ability to compete. It is response to these two factors cannot push it further than it is.
Guinness needs to diversify its offerings, devise alternative strategy to take on competition. The company spends more marketing and sales efforts on its Guinness Stout. A changing demography, taste and competitive landscape has made the once ‘flagship’ brand struggle to eke out a sizable chunk of the market. While Orijin its younger and local answer to a popular herbal-based beverages and alcoholic beer in Nigeria has not done badly, but the response from competition is also making the situation more dicey for the brand.
What is clear going forward is that: Orijin alone cannot shore up its balance sheet for it to reach profitability and stabilise. The plan to export Orijin and Guinness Stout is wise but short term tactic to benefit from a weakened Naira against the Dollar. In the mid and long term, the company will need to stand up to its bigger rival, Nigeria Breweries, perhaps through acquisition of some key regional players to gain some balance. Develop markets for new brands and stop spending much money on a single brand.
Guinness has not given much details on it restructuring moves, but it is glaring the company will scrabble to save itself.