The Managing Director/Chief Executive Officer, Guinness Nigeria Plc, Peter Ndegwa, spoke to STANLEY OPARA on the growth of the company amid the current economic realities in Nigeria
Guinness Nigeria recorded 131 per cent increase in operating profit year-on-year for 2017 financial year. How was the company able to achieve this despite the state of the economy?
Guinness Nigeria’s financial results were driven by a relentless focus on executing our strategy and keeping costs down. Despite the challenging economic conditions, we have remained focused on executing our company’s total beverage strategy, which gained further traction with strong growth in our international premium spirits portfolio following our first full-year of distribution.
In December 2015, Guinness Nigeria became the first total beverage alcohol company in Nigeria when it acquired the rights to distribute International Premium Spirits including Johnnie Walker Scotch whisky and Bailey’s liqueur in Nigeria. This was quickly followed in January 2016 by the acquisition of the rights to distribute McDowell’s, a United Spirits Limited whisky brand.
Our gross profit of N48.3bn is as a result of volume growth, pricing benefit and a favourable sales mix as we continued to invest in our expanded brand portfolio during the year.
Was there a major investment locally with respect to this growth?
Part of our investment includes the N4.7bn spirits line for locally manufactured spirits which we inaugurated in Benin. These strategic acquisitions and expansions have filled the gaps in the spirits brand base, allowing us to compete across all categories of the alcoholic beverage market in Nigeria. We remain committed to executing our productivity agenda with a strong focus on cost reduction, distribution and operational efficiencies.
What is your export strategy, considering the huge market outside Nigeria?
We are investing behind our capacity and if we weren’t thinking long term, we would not be doing that. Our exports have also been expanded, and this is not because of the desire for profits. Really, we intend to access foreign exchange. We exported some of our products to countries such as Ghana, Cameroun, and so on. From these exports, we were able to use the money we earned to fund the purchase of the import. We were also able to reduce costs in the last two years through sourcing of raw materials locally. However, this is not always about lowering cost, especially during economic recession, though it is more sustainable long term. We source cassava and sorghum, among others, locally and have significantly moved our local sourcing from 40 to 75 per cent in the last three years. Although there have been challenges but we still believe this is sustainable. We have also started to work with Edo State and some other Northern states in developing the value chain of the agriculture sector. For quality, we have effective processes in place, and we can get better pricing and guarantee farmers on specific prices of their farm produce.
Will these successes translate to better dividend for your shareholders going forward?
Guinness Nigeria has a history of paying good dividend to its shareholders. It has always been around 50 per cent of our profit after tax. This year, our shareholders got 50 per cent of the company’s profit after tax as dividend, and this is not unusual. Long-term shareholders of our company know our culture. Guinness, this will not be unusual. We are very confident that we have implemented the right strategy, and we have gone through our rights issue, which will help us take out a lot of debts that we have had on our balance sheet. This has been a drag on our results. Last year, our interest cost was quite significant, and if you are able to significantly reduce that interest cost, then it means the profile of your profit will be more stable. More so, because we have reduced the debts, including the foreign exchange debt, now that liquidity is more available, then you expect less volatility on the foreign exchange which had previously impacted negatively on our profitability. So, we are growing better and starting to have more predictable growth. We are more confident in managing costs and interest on costs that we have been carrying and also the foreign exchange volatility. That is the reason why the board of directors recommended that dividend level to the shareholders.
Now, the country is out of its 18-month recession. Do you see this impacting on your future performance?
For us, the Gross Domestic Product of our operating environment is germane, and in the case of Nigeria, it has started to grow in the second quarter of this year. That this is happening now remains good news to us and also is a key pointer to the fact that the country is exiting recession.
To consolidate on this, the country needs more quarters of positive GDP growth until consumers regain their purchasing power. At the moment, the costs of buying commodities are still going up so we can see consumers holding back on spend, reducing frequency of purchases, or spending less anytime they purchase, or going for lower-priced brands. If you look at the other Key Performance Indices of the economy, one of which is inflation; it is in double digits; food inflation is about 20 per cent.
So, consumers are not in great shape yet. From the manufacturing perspective, foreign currency still remains an issue as the Nigerian economy has big import content. Although we are sourcing 75 per cent of our raw materials locally, there is still 25 per cent which is a lot of money for our business. When you are importing and accessing foreign currency, the foreign exchange market is very important. The past 20 months when liquidity was a problem, it was a big issue for us, even though we were able to get $95m support from Diageo. The intervention of the Central Bank of Nigeria is quite laudable as it improved liquidity. This is one of the biggest positives that we have seen in the GDP. This has brought stability in terms of the company’s ability to access liquidity, and our concern is how sustainable is this. Also, the shocks in the economy, oil price, security, and policies are factors that need to be considered. The CBN has had different policies at different times but we hope that this one will continue to be stable because it provides the cover for companies to plan, and predict their expenses to suppliers.
However, Guinness Nigeria is committed to driving productivity. We are significantly reducing waste, driving simplification and improving our business processes.