E-Malt.com News article: Nigeria: Guinness Nigeria’s half-year results fuel hope of turnaround in company performance

A relatively strong revenue growth reported by Guinness Nigeria Plc in its just-released 2015 half year results is fueling hope of a true turnaround at Nigeria’s second largest brewer, reports This Day Live.

Investment analysts believe Guinness Nigeria Plc’s half-year results indicate that the company is certainly coming out of the headwinds of declining growth which had unsettled long-term investors of the alcoholic and non-alcoholic beverages manufacturer over the last few years.

Ironically, the cheering results which follow a tough 2014 financial year for the brewer with Head Office in Lagos, and three breweries in Lagos, Benin and Aba, were delivered under the watch of Mr. Seni Adetu, former MD/CEO of the brewing giant, prior to his redeployment.

The results affirm Adetu’s clearly articulated turnaround hopes last year which was premised on huge investments in capacity expansion, portfolio re-engineering and route-to-consumer step-change. Appointed in early 2012, he was redeployed in December 2014 in line with Diageo’s job rotation inclination which had seen Managing Directors of its Nigerian unit spend an average of three years on the job.

The first Nigerian CEO of Guinness in 20 years was replaced by Mr. John O’Keefe, a global brand Guinness veteran, who has been on the board of Guinness Nigeria as non-executive director since 2012. It would seem the leading brewer redeployed Mr. Adetu just as efforts to revive its fortunes started paying off after a string of disappointing results, largely predating his time as Chief Executive Officer.

The 2015 financial year is turning out to be a very good year for the brewer. The half year results for the period ended December 31, 2014, released last week, highlighted improvement in performance as revenue for the second quarter showed a growth of 13 per cent compared to 6 per cent decline in the first quarter. In the unaudited financial results, released to the Nigeria Stock Exchange (NSE), Guinness Nigeria recorded a gross turnover of N55 billion compared to N52 billion recorded in the same period in the 2014 financial year, resulting in 5 per cent growth for the half year.

In spite of a weak beer market between July and September 2014, Guinness Nigeria had declared a six per cent rise in profit before tax year-on-year when it released its financial results for the first quarter ended 30 September 2014.

The result showed that the company’s pre-tax profit rose to N1.962billion from the N1.867billion it posted for the first quarter ended September 30, 2013. The company’s gross profit rose, albeit marginally, from N10.457billion to N10.548billion, while operating profit advanced to N2.903 from N2.701billion.

According to Analysts at Proshare, Guinness’ closest competitor and Nigeria’s largest brewer, Nigerian Breweries (NB) Plc saw 5.7 per cent year-on-year sales decline over the same period; similar to the first quarter result of Guinness Nigeria Plc. However, the latest results by the latter indicating a 13 per cent revenue growth is most heart-warming.

Even though profit after tax still shows a decline for the half year, investors will note that this decline is largely driven by operating and finance costs, which if fully mitigated will lead to a good profit outturn.

One of Nigeria’s most successful companies and second largest brewer, Guinness Nigeria had over the last few decades delivered strong shareholder returns by essentially playing in the premium segment.

However, the market entry of SABMiller into a once dominant two-player beer market, and further squeeze on the discretionary income of consumers by 2012 fuel subsidy removal, which led to consumer shift to the value segment of the beer category, further compounded the company’s performance woes.

Instructively, Guinness Nigeria’s competitors were reporting growths in their performances largely from value brands, a segment the company hadn’t built. Apart from a very weak presence in the value segment of the beer market, Guinness Nigeria was also challenged in areas of distribution infrastructure and the capacity to meet consumer demand without rationing before it announced a capacity expansion investment of N55 billion in 2011.

Committed to reversing its disadvantages in relation to competition, Guinness Nigeria under the watch of Adetu tackled some of these challenges. It has now established a strong footprint of lower-priced beers through the expansion of Dubic from regional to national brand; and the repositioning of Satzenbrau into a key brand in the value segment. From an almost exclusively premium brands company, Guinness Nigeria now have impossible to remove footprints in the value segment of the beer sector.

The brewer also invested heavily in fixing its capacity and route-to-consumer challenge. In the area of capacity expansion, Nigeria’s second-largest brewer purportedly doubled its capacity to over 7 million hectolitres to meet the growing demand for its products.

On the route-to-consumer front, Guinness Nigeria overhauled and upgraded its distribution infrastructure to make its brands more available, more consistently right across the country; thus creating a big opportunity for the brewer to improve performance now that it has enough capacity to meet consumer demands. This encompasses upgrading logistics, customer marketing, and sales capabilities.

For instance, as part of route-to-consumer first steps to ensure quick wins, the leading brewer deployed Guinness Distribution Centres (GDC) in their hundreds across the country. The initiative reduces the entry barrier into the wholesale trade for intending Guinness Distribution Centre operators in the rural areas where the brewer’s competitors formerly reigned supreme.

Perhaps one of the most significant legacies of the Seni Adetu years in Guinness Nigeria is the launch of Orijin, a new alcoholic beverage brewed in bitters and ready-to-drink categories. The brand, described by RenCap, as the fastest growing in the beer and ready-to-drink categories is also identified as the primary reason for the reversal in the topline performance of the company.

Mr Adetu’s championship of the introduction and expansion of this brand especially positioning it to source volume from lagers is regarded as the most remarkable product development in Nigeria’s alcoholic beverage industry in recent times. And it has kept Guinness Nigeria a step ahead of competition in terms of market share increase.

Inspired by the tradition of herbal drinks, Orijin is an alcoholic blend from the stable of Guinness Nigeria Plc with the flavours of African herbs and fruits, combined to give a refreshing bitter-sweet taste. The brand embodies and celebrates all that is alive and exciting in Africa today which explains the incredible consumer uptake since it hit shelves and bars across the country in 2013.

Following changes at Guinness Nigeria Plc last year, it has emerged that the transformational efforts of the corporation have started yielding good results. Key brands continue to leverage their strong equities and connections with consumer passion points across premium and value segments to drive growth in net sales. This has also translated into significant market share growth for the brands in the brewer’s portfolio as extends its footprint premium and value segments in the beer market.

From the announcement made last week of the company’s half year results which showed a turnover of 13 per cent, there is evidence that the performance improvement trends over the last year have been sustained. It would be recalled that a year ago, the company experienced 18 per cent decline in turnover in Q3 2014 which has progressively improved to -6% in Q1 2015 and 13 per cent growth in the last quarter. Not only that, it is believed that the results are strong indicators of the company’s consistency in growing market share in the last few months led by the solid performance and expansion of Orijin bitters and RTD.

When Mr. Adetu was contacted on phone for a perspective on the strong performance outturn before his exit, his words were assuring of a sustained market share growth by the brewer. “I am delighted, but not in the least surprised. I have always said that in my near three years in role, my focus was building the foundation to ensure a sustainable profitable growth. I worked till the very last day of December 2014, and left on a high with performance the strongest we ever seen in the company. “

With falling oil price, a deficit budget and the prospect of government spending cuts and low to no growth in GDP, it is evident that fast moving consumer goods companies are entering an era of the winners and losers based on price points.

This makes it imperative for O’Keffe, who has been on the board of Guinness Nigeria for the past two years, to win the ‘beer war’ by consolidating the recent market share gains of the second largest brewer in the premium and value segments.

Marketing investments behind the brands such as the Guinness ‘Made of Black’ campaign, Origin media campaign and activations, as well as the Malta Guinness ‘Game on’campaign, among others should be up-weighted, and not cut.

In addition, cost containment and efficiency, investment in operational capacity and innovating at scale to meet new consumer needs, as well as the extension of the company’s emerging route-to-consumer advantage can guarantee good volume growth and profitability in spite of market uncertainties.

Guinness Nigeria Plc is a foremost brewing company and leader in the manufacturing sector of the economy. From little beginnings through trade importation and distribution in the 1940s and 1950s, the company built its first brewery in Ikeja in 1962 to satisfy the high demand for its products. Significantly, the brewery was the very first out of the British Isles and, indeed, the third Guinness brewery in the world.

The encouraging sales volumes of those early years stretched the installed capacity of the brewery and prompted an expansion scheme that doubled it by 1970.

The company was to later build another brewery in Benin in 1974 to produce Harp lager beer and the facility was expanded to accommodate a third stout brewery, commissioned in 1977.

A fourth Guinness brewery was built in Ogba in 1982 to brew Harp lager beer. This too, was expanded to include Guinness Stout. Our breweries are amongst the most modern and technologically driven breweries in Africa.

In order to further increase capacity to meet the growing demand for its products, the company in 2004 commissioned another brewery at Aba, Abia State.

Today, the company’s portfolio includes iconic brands and market leaders such as the flagship brand, Guinness Foreign Extra Stout; Guinness Extra Smooth, with a new smooth taste; Malta Guinness classic and Malta Guinness Low Sugar, the preferred malt drinks; Harp lager beer noted for its distinct taste and value; Snapp, an exotic ready to drink product, Smirnoff Ice, a premixed alcoholic drink and Dubiclager beer. Guinness Nigeria was listed on the Nigerian Stock Exchange in 1965, and has about 72,000 shareholders. It is owned by Diageo Guinness Overseas Limited (46 per cent), Atalantaf Ltd. (7.8 per cent) Nigerian Citizens (46.2 per cent).

Diageo is a global company, trading in over 180 markets around the world.


11 February, 2015