Guinness Nigeria turns a profit amid rising costs, interest expense

Guinness Nigeria Plc, the country’s second largest brewer, returned to the path of profitability despite increased costs and spiralling interest expense on obligations.

The local unit of Diageo Plc posted profit after tax of N1.92 billion for the six months through June 2017 from the N2.01 billion after tax loss it recorded the previous year.

The company’s audited financial statement for the period June 2017 showed that sales spiked 23.47 percent to N125.91 billion. The Nigerian brewer has embarked on aggressive expansion and re-banding of key product with a view to bolstering revenue.

Guinness impressive performance in the period under review can be attributed to strong growth in sales as operating profit surged by 130.98 percent to N10.18 billion while gross profit was up 15.54 percent to N48.15 billion.

Analysts say the company benefitted from the average price increase in key products such as economy brands Satzenbrau Pilsner, Harp Lager, and Dubic.

“Similar to rival NB which reported its Q2 2017 (end-June) results in July, we believe that Guinness’ results were driven by higher pricing rather than volume growth,” said Tunde Abidoye, equity research analyst with FBNQuest Limited, in an emailed note to clients.

“We note that brewers implemented average price increases in the mid-teens range towards the latter part of last year. We also believe that the relative ease of sourcing fx from the NAFEX window which was introduced in April also helped with the gross margin expansion,” Abidoye said.

Fast Moving Consumable Goods (FMCG) firms have been experiencing improved performance since Nigeria’s Central Bank introduced the Investors and Exporters window and subsequently harmonized the foreign exchange market.

The introduction of the new policy by the apex bank and improved oil production as a result of the relative peace in the Niger Delta region saw Nigeria’s economy exit recession.

Nigeria’s economy expanded by 0.55 percent, year-on-year, in the second quarter of 2017. This compares to 0.90 percent contraction in the first quarter, according to the country’s data body, the National Bureau of Statistics.

Guinness is groaning under rising costs brought by the devaluation of the Naira, Nigeria’s currency, as cost of sales spiked by 28.98 percent, higher than 16.01 percent July inflation figure.

The Nigerian brewer plans to raise N40 billion through a rights issue to mitigate finance costs, strengthen the balance sheet, and enhance financial flexibility.

Guiness finance costs increased by 23.04 percent to N9.77 billion while total (short and long term) borrowings stood at N34.37 billion in the second quarter-ended June 2017. This is lower than N36.22 billion recorded the previous year.

Gearing ratios moved to N70.59 billion in the period under review from 69.58 percent the previous year. Total trade payables were up 14.70 percent to N43.05 billion.

Guiness interest coverage ratio of 0.95 times operating profit means its ability to meet interest expense is threatened.

The management of the firm has proposed a full year dividend of N0.5 on every share held, lower than the N3.20 dividend for 2016. The proposed dividend translates to a dividend yield and payout ratio of 0.7 percent and 39.1 percent respectively.

Guinness shares gained 0.85 percent since the start of the year to close at N79.27 as of close of trading on Tuesday, valuing it at N119.37 billion.

 

BALA AUGIE