Mr. Peter Ndegwa is the Managing Director, Guinness Nigeria Plc. At a recent “Facts Behind the Figure” programme organised by the Nigerian Stock Exchange, Ndegwa bared his mind on the company’s poor performance in 2016, blaming the situation on the harsh economic environment. Our correspondent, NGOZI AMUCHE, was there. Excerpts:
Between 2015 and 2016, Guinness Nigeria obtained loan facilities from various financial institutions to fund its working capital requirements. Is this the reason you are approaching the market for fund?
Yes, the presentation of our detailed plans to raise N39.7 billion by way of Rights issue to our existing shareholders, at the ‘Facts behind the figures’ on the floor of the Nigerian Stock Exchange recently, is to enable us optimise our capital structure, deleveraging our balance sheet, and thereby reducing financing costs.
The proceeds will be applied towards repayment of the company’s various outstanding loan obligations. These were obtained to fund the company’s working capital needs and to expand operations. It is estimated that this will be completed in the fourth quarter. The Right Issue will reposition the company to deliver on its strategic objectives and give all shareholders a unique opportunity to increase the number of shares they hold.
we have also seen a lot of down-trading by consumers as well as a reduction in the frequency of purchase, thus forcing them to prefer lower priced brands. Secondly, the cost side has had the most fundamental impact on many businesses
Are you optimistic that the Rights Issue will be fully subscribed, considering the current economic lull?
Our expectation is that the Rights Issue will help mitigate the impact of increasing finance costs, optimise balance sheet and improve the company’s financial flexibility. We expect that it will eliminate our increasing finance costs and return the company to profitability. The last time we did a Right Issue was about 25 years ago. We believe that given the current economic climate, it’s time we go back into the market to ensure that the business can navigate through the next few years which are going to be tough, however. We’ll continue to invest to grow our business.
So it’s about investment, enabling us retire debt that we have on our balance sheet, including dollar-based debts, and therefore remove the foreign currency risk that we are carrying on our balance sheet, which is healthy for investors, so that in the future, we have less volatility in our Profit and Loss statement. Also, we believe that the Rights Issue would be fully subscribed since the shareholders have given their approval and support.
How difficult is it doing business in Nigeria?
Doing business in Nigeria is tough, but I am very optimistic about the company’s potentials for the future. Guinness Nigeria is a company with excellent fundamentals and we have the right strategy and the right people to grow our business for the future.
Last year, Guinness Nigeria Plc became the first total beverage company in Nigeria when it acquired rights to distribute international premium spirits like Johnnie Walker and Baileys in Nigeria in January 2016. In November 2016, the company commissioned a spirits line for locally manufactured spirits at its Benin plant. The company is also expected to release its first half results for the six-month period ended 31st December 2016.
Specifically, what are the challenges facing the manufacturing industry in the country?
The economic environment has been challenging for all businesses and we are no exception. Within the context of the economy, there are things to be mindful of. First, consumers are under pressure, given that we are in a recession and for businesses like ours who sell consumer goods, it is an important consideration. We have also seen a lot of down-trading by consumers as well as a reduction in the frequency of purchase, thus forcing them to prefer lower priced brands. Secondly, the cost side has had the most fundamental impact on many businesses.
As evidenced by many of the financial results being announced, one would see clearly that the cost side of the business has posed a very great challenge for many firms. This is primarily caused by the currency, in terms of where the naira is paired against the dollar and also, by inflation. On the Foreign Exchange issue, we have seen a move from a fixed rate to a kind of managed float, which has led to depreciation of our currency by about 50 per cent.
How have you been sourcing your raw materials locally?
We have commenced downward integration strategy. So, while we have increased our local sourcing from about 40 per cent to 70 per cent in the past two years, we have had it easier with raw materials like sorghum because they come from farms. Even with sourcing local raw materials, we have had some challenges partly in terms of crop failure, and partly because of increase in trading around the borders, which is driven by currency. This means that the price we’ve had to pay for sorghum, for example, is twice or has increased two and a half times the normal rate.
Tell us the challenges you encounter in the brewery sector?
One important factor that affects the brewery industry is energy. We have seen less availability of gas during the year. Our energy supply in many of our factories is dependent on gas plants, especially in Lagos. As such, when gas is not available, we are forced to use diesel, which is less efficient and more costly. So when you translate this big element into performance, your topline and costs are under serious pressure. And then in terms of funding, interest rates have gone up, and because you have less cash flow, you have to take a little bit more debt, including foreign currency debt so that you are able to fund the business, given the lack of liquidity.
Can you shed more light on the Rights Issue position?
For the Rights Issue, a total of 684,494,631 ordinary shares of 50 kobo each will be offered to existing shareholders in the ratio of five new ordinary shares for every eleven ordinary shares held by shareholders whose names appeared on the register of members of the Company, at the close of business on Wednesday, 15 March, 2017.The issue price is N58 per share. Stanbic IBTC Capital Limited is the issuing house to the offer which opened on Monday 24 July, 2017 and will close on Wednesday 30 August, 2017.
This Rights Issues in combination with our productivity and cost optimisation drive will help provide the fuel to continue to build this business for Nigeria and Nigerians.
