Guinness Nigeria Plc, a subsidiary of Diageo Plc, has announced its unaudited results for its first half year 2019 for the period ended 31st December 2018.
The results, released to the Nigerian Stock Exchange (NSE), showed a slump in earnings a reflection of weak topline performance emanating from lower revenue and subsisting cost pressure over the period.
During the period under review, it grew Profit After Tax by 23% Year-on-Year to N2.58 billion following a sharp drop in finance cost down by 67.9% Year-on-Year to N1.54 billion after paying down its foreign currency denominated loans with the proceeds of its N40 billion rights issue raised in its 2018 fiscal year.
In Q2 Guinness reported weaker revenue of N39.7 billion down by 2.3% Year-on-Year, also net sales declined 4% in the half year ended 31st December 2018. This was primarily driven by the strife competition in the lager segment as a result of the continued challenging operating environment and higher excise duty rates.
The opening of International Breweries (IB) Sagamu plant which added an estimated 2.5 million hectoliters to its existing capacity, enabled IB to increase its presence in the country and market share, with the impact being felt on other sector players including Guinness.
Further reflecting on the ‘Beer war’, Guinness was unable to pass on the higher excise duty rates which grew by 36% Year-on-Year to customers following IB’s decision to leave prices unchanged, thus imposing further pressure on revenue.
The Lager segment has seen an intense battle between the three manufacturers in the country. Guinness has Harp in the lager segment, while Nigeria Breweries has Heineken and Star and International Breweries also have Trophy and the newly introduced Budweiser Brand in the market.
However, Guinness continues to show its dominance in the Spirit segment where it has a plethora of spirits Brands. It recorded double-digit growth in spirits and continued growth in Guinness mitigated some of the declines in the period.
The fragile economic growth has seen consumers go for cheaper beer brands, coupled with a change in the taste of consumers which has seen a shift to handy and cheaper sachet spirit brands.
Gross profit declined 15% from N23.99 billion in half-year 2017 to N20.49 billion in the corresponding period in 2018 this was as a result of net sales decline, as well as continued inflationary pressure on the company’s raw material costs and lower fixed cost absorption. Marketing spend decreased 10% from 12.88 billion in half-year 2017 to N11.55 billion in the same period 2018.
Operating profit declined by 30% from N6.64 billion in 2017 to N4.63 billion in 2018 as the productivity initiatives around marketing spend, distribution expenses and administrative expenses mitigated some of the inflationary cost of sales pressure.
Mr. Baker Magunda, Managing Director/CEO, Guinness Nigeria plc noted that the half-year result reflected the continued challenges in the operating environment.
It would be recalled that an analyst at Renaissance Capital, Adedayo Ayeni, had predicted that the H1 results will continue to show weakness in operating profit like in the first quarter. Noting that Tariff increase on beer and spirits introduced by the government is affecting the company’s earnings margin more than competitors.
“Guinness Nigeria does not have the type of brand that can carry it through the cycle” of intense competition in the beer market,” he added.
Guinness Nigeria Plc was incorporated in Nigeria in 1950, its shares as at 30th January traded at N65.00 with a one-year return down by 41.25%.
OLUFIKAYO OWOEYE
