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Guinness Nigeria records N60.5bn loss on operating expenses, foreign exchange pressures

Guinness Nigeria records N60.5bn loss on operating expenses, foreign exchange pressures

Guinness Nigeria Plc has recorded its first loss in about five years due to increased costs and foreign exchange pressures, according to its latest unaudited report, BusinessDay findings show.

The brewery company recorded a N60.45 billion loss before tax in its nine month 2023/2024 compared to N9.94 billion profit in the same period of the previous year.

Its Operating expenses surged by nine percent, amounting to N48.50 billion from N44.43 percent the previous year.

The drop in its income tax to N1.2 billion in the period under review from N4.1 billion the previous year made its after tax loss drop to N61.65 billion.

Guinness took a $22.5 million loan from its parent company, which is expected to be paid in full this fiscal year.

Guinness $22.5 million loan from its parent company and the float in exchange rate in 2023 resulted in an 89 percent surge in foreign exchange loss of N83 billion in its latest report.

The FX loss was the major contributor to its finance expense which moved from 90.2 billion in the period under review from N9.3 billion in the previous year.

Analysts at CardinalStones noted that they still expect such trends in coming quarters. “We expect cost pressures to remain elevated, driven by the impact of rising inflation on locally sourced raw materials (e.g. sorghum) and foreign exchange volatility on imported products, notably the international premium spirits portfolio,” they said.

They, however, noted that for operating costs, they envisage a flattish EBIT margin of 10.1 percent in the full year 23/24 (vs. 10.2 percent in full year 22/23), driven by the impact of high energy prices on distribution costs. Similarly, marketing expenses are expected to close the period higher due to increased brand awareness spending as industry competition becomes rife.

Elevated cost pressures led to changes in the prices of most of its commodities in May, Nigeria recorded 33.95 percent in its headline inflation, a 28-year high, as the consumer’s purchasing powers also recorded a decline.

Read also: Tolaram to acquire Diageo’s shareholding in Guinness Nigeria PLC

On the flip side, the brewery maker witnessed a 27 percent increase in its revenue to N220.30 billion in the period under review from N172.47 billion as a result of increase in its local sales.

“Going into FY ’24/25, we expect the company to recover to a positive earnings position due to the localisation of its raw materials, improved export earnings, and lower foreign currency exposure, given the settlement of its FX-denominated borrowings,” CardinalStone analyst said.

They expect a recovery in EBIT margin to 10.2 percent in full year 24/25 as the company begins to enjoy cost savings benefits from leveraging Tolaram’s strong distribution networks and efficient supply chain. The impact of lower AGO prices is likely to provide further support on this front.

Just recently, Guinness sold a majority stake of 58.02 percent to Tolaram and entered into long-term license and royalty agreements for the continued production of the Guinness brand and its locally manufactured Diageo ready-to-drink and mainstream spirit brands.

As a result of this acquisition analyst at CardinalStone expects synergistic benefits and strong revenue growth through a margin-accretive selective portfolio play and margin protection via effective management of its foreign exchange exposures (increased local inputs and FX debt repayments).