Guinness Nigeria Plc, one of the country’s leading brewery companies, has reported a significant pre-tax loss of N73.6 billion for the financial year ending June 30th, 2024.

This stark loss represents a 233% decline compared to the N22.1 billion pre-tax loss reported in the previous year. The primary factor contributing to this financial downturn was the depreciation of the Nigerian Naira, which adversely affected the company’s bottom line, particularly in relation to its foreign currency loans.

The financial year under review was marked by several challenges for Guinness Nigeria. Despite the company’s revenue increasing by 30.5% to N299.5 billion from N229.4 billion in FY 2023, the overall financial performance was heavily impacted by the rising costs and financial charges associated with foreign currency loans.

The company reported an FX revaluation loss of N112.3 billion, a staggering 129% increase from the N49.1 billion loss incurred in the previous year. This significant foreign exchange loss was a major contributing factor to the overall financial decline.

Key financial highlights from the fiscal year include:

• Revenue: N299.5 billion, a 30% year-on-year increase
• Cost of Sales: N208 billion, a 37% year-on-year increase
• Gross Profit: N91.5 billion, a 17% year-on-year increase
• Marketing and Distribution Expenses: N49.7 billion, a 20% year-on-year increase
• Operating Profit: N25.4 billion, a 9% year-on-year increase
• Net Finance Costs: N99.1 billion, a 118% year-on-year increase
• Loss Before Income Tax: N73.7 billion, a 233% year-on-year increase
• Loss for the Year: N54.8 billion, a 201% year-on-year increase
• Total Assets: N226.1 billion, a 6% year-on-year decrease
• Cash Generated from Operating Activities: N100.4 billion, a 75% year-on-year increase

The Losses Points

The company’s gross profit margin suffered due to increased raw material costs, which rose to N149 billion, reflecting a 40% increase from N106.6 billion in the previous year. This surge in costs was partly driven by inflationary pressures and the devaluation of the naira, which increased the cost of imported raw materials.

Additionally, Guinness Nigeria’s trade receivables net expected credit loss for the financial year stood at approximately N12.1 billion, a 21% increase from the N10 billion reported in the prior year. This increase indicates a growing challenge in collecting payments from customers, further straining the company’s cash flow and financial stability.

Diageo’s Exit and Tolaram’s Entry

The financial challenges faced by Guinness Nigeria come at a time of significant ownership changes. The company’s parent company, Diageo Plc, recently sold its majority shareholding to Tolaram Plc, marking the end of an era and the beginning of a new chapter in Guinness Nigeria’s history. The relationship with Diageo has been a critical aspect of Guinness Nigeria’s operations, particularly concerning financial arrangements and market strategies.

According to the company’s financial statements, Guinness Nigeria had an outstanding loan of $22.5 million to Diageo Plc. At the end of the financial year on June 30, 2023, this loan had a face value of N17.9 billion, which increased to N39.3 billion by the end of the 2024 financial year.

Moreover, the company’s strategy to manage its foreign exchange exposure included a significant reduction in letters of credit liabilities, which dropped to N814 million from N45.8 billion in the previous year. This reduction aligns with a broader trend among Nigerian subsidiaries of foreign-based companies, which have been relying more on intercompany loans with more favorable terms than traditional bank credits to manage their FX requirements.

However, the brewing industry in Nigeria remains highly competitive, with local and international players vying for market share. While the financial year 2024 was undoubtedly challenging for Guinness Nigeria, the transition in ownership from Diageo to Tolaram may present new opportunities for the company.

Although the immediate focus appears to be on stabilizing the company’s financial performance and addressing the foreign exchange losses, the new ownership could potentially bring fresh perspectives and strategies to rejuvenate the company’s market position and operational efficiency.

Comment: You wrote “For South Africa’s rand,  the Naira has lost a factor of 6 over the same period (1 Rand was about N15 in 2015; today, it can buy N90).“  What other things do I not know about Nigeria and South Africa in the capital market.

My Response: You know everything but let me simply add from the small file here. First, one bank in South Africa can buy all the banks in Nigeria, on current market valuations, and still have a change. Secondly, one company in South Africa across all its subsidiaries needs just 50% of its value to buy every company in the Nigerian stock exchange.

Then, the big one: the total value of the Nigerian stock exchange is about $80 billion using a favourable exchange rate; South Africa’s Johannesburg Stock Exchange is worth about $1.2 TRILLION.

I guess you know these things, and those innuendos from our leaders on how Nigerian banks are making tons of profit and ripping customers off. The fact is this: Nigerian banks underperform when you benchmark their assets because they do not have the field (growing economy and market) to do business. These are small entities lost in a sea of untapped and unlocked opportunities.

That our upward moving hike on interest rate makes them “collect” should not cloud our thinking that our capital market and banking sectors remain largely muted when you consider that we are at least 3.5X the population of South Africa. The high interest rates in our banking halls are due to the prime rate which the Central Bank of Nigeria (CBN) is responsible for. Banks do not set those rates. If CBN picks from Japan and sets the prime rate at 0.25%, we can get interest at about 6% in Nigeria (extra covers insurance, operations, profits, etc).

(Note: that low rate will be disastrous due to inflation I must note)

Of course, this is not to defend the banks for those mindless fees; I am simply saying that Nigeria needs leaders who can think of how to EXPAND opportunities over mere taxing the small piece we have. 

Question: Prof, outside the extractive sector, which sector in Nigeria is comparable to SA in Value?

Startups – Nigeria before May 2023 was outperforming South Africa across many indicators. While they have bigger banks, we built bigger fintechs, creating continental Africa’s largest species in that new sector. But unlike South Africa, 99% of the leading startups in Nigeria are not Nigerians, but Delaware (USA) companies, technically meaning that even though Nigeria created them, the value goes to America. So, in 5-7 years when we are expected to renew our stock market, Nigeria will have none as these firms will likely not list in Nigeria. As I have noted in Harvard, every 10 years, something new happens in Nigeria – 1990s gave the new generation banks; 2000s brought voice telephony; 2010s gave us the mobile internet; we’re moving into application utility era. But unlike those past eras, the new ones may not deliver value at home.

Why Retroactive Taxing of Nigerian Banks Is A Bad Policy

My position is this: Nigeria made a mistake when it taxed our relatively poor banks. The government should have mandated them to lend 70% of the FX-anchored vapour gains, under the central bank supervised apparatus, at half of their typical interest rates. This will boost the economy and help the government’s playbook to grow the economy. But plucking the money out of the banking sector to be spent by bureaucrats negatively impacts the economy.