Guinness Nigeria to pay fine of N11.4 million

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Monday, March 14, 2016 12.45PM / CardinalStone Research

Guinness Nigeria Plc (Guinness Nigeria) and the National Agency for Food and Drug Administration and Control (NAFDAC) have resolved a dispute which began last year.

Guinness Nigeria received a letter dated 9th November 2015 from NAFDAC which, among others, imposed administrative charges of N1 billion for unauthorized revalidation of expired products.

Background

Late last year, in a letter addressed to the managing director of Guinness Nigeria Plc, Peter Ndegwa, NAFDAC requested the payment of N1 billion as administrative charges for infractions such as the revalidation of expired products without authorisation and supervision by NAFDAC and the failure to secure the company warehouse as raw materials for production of beer and non-alcoholic beverages were exposed and opened to intrusion which will invariably affect the "integrity of the raw materials".

The brewer was also alleged to  have maintained poor documentation records and failed to comply with conditions contained in the certificate of validation of the revalidated malt extract. In a counter suit, the company filed an originating motion restraining the agency from imposing any sanction on it other than as recognised by law and the constitution.

Recent Development

Guinness has withdrawn the law suit it filed to contest the fine, and has agreed to pay N11.4 million to NAFDAC as administrative and service charges to cover the cost of a nationwide warehouse inspection that the agency will be carrying out. Also, under NAFDAC's supervision, the Company has agreed to destroy raw materials deemed to be expired.

Our thoughts
In our opinion, the fine is immaterial as it just translates to 0.02% and 0.3% of H1'16 revenue and PAT respectively. What is pertinent is the value of the destroyed inventory and the costs that will be incurred in order to replace expired inventory.


With consumer wallets being pressured and the inability of the company to pass on increased costs to consumers, the company is exploring cost cutting strategies and to that effect  announced that it would embark on a  restructuring program which will include employee retrenchment in order to streamline expenses.

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