Guinness Nigeria’s profitability is feeling the heat of rising inputs costs, foreign exchange (FX) losses and operating expenses, BusinessDay’s findings have shown.
The nine-month financial results available on the Nigerian Exchange Group show the firm’s profit fell by 31.93 percent to N2.75 billion in the first nine months of 2022 from N4.04 billion in the same period the previous year.
This occurred despite its revenue being the highest reported by the beer maker in ten (10) years. Revenue grew by 11.33 percent in the nine-month period of 2022 to N52.85 billion from N47.47 billion in the nine-month period of 2021.
Further analysis of the financial results shows that the firm generated N51.91 billion from the sale of its products in Nigeria and N942 million from the export sale of its products.
Subsequently, the firm declared earnings per share of N125 per share in the nine-month period of 2022.
Rising input costs, finance costs, and OPEX
Nigeria’s inflation rate has risen at a rapid rate month on month, now at 21.09 percent in October 2022, impacting the cost of raw materials used by manufacturing firms in production.
Guinness’s cost of sales, however, grew slowly by 7.38 percent to N34.61 billion in the nine-month period of 2022 from N32.23 billion in the nine-month period of 2021.
In the same vein, with energy costs rising, the cost of doing business in Nigeria has increased significantly, thereby adding extra burden to the manufacturers who then pass on the cost to the final consumers through price increases.
Operating expenses (OPEX) reported by the beer maker grew by 44.65 percent in the nine-month period of 2022 to N12.99 billion from N8.98 billion in the nine-month period of 2021.
The increase in operating expenses can be attributed to the 49 percent increase in administrative expenses which amounted to N3.58 billion in the nine-month period of 2022 from N2.39 billion in the corresponding period of 2021.
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Marketing and distribution expenses amounted to N9.41 billion in the nine-month period of 2022 from N6.58 billion in the nine-month period of 2021, representing a 43 percent increase.
Finance costs surged by 129.91 percent on foreign exchange losses and interest paid on loans and borrowings during the period.
Total finance costs increased to N2.46 billion in the nine-month period of 2022 from N1.07 billion in the nine-month period of 2021.
The beer manufacturer saw its interest paid on loans and borrowings spike by 484 percent to N703 million in the nine-month period of 2022 from N120.33 million in the nine-month period of 2021.
Similarly, the firm reported exchange differences on foreign currency loans which spiked 303 percent to N387 million in the nine-month period of 2022 from N96 million in the nine-month period of 2021.
Loss on remeasurement of foreign currency balances reported by the company also increased by 41.34 percent to N1.13 billion in the nine-month period of 2022 from N799 million in the same period of 2021.
Consequently, the profit margin shrunk by 331 basis points to 5.20 percent in the nine-month period of 2022 from 8.51 percent in the nine-month period of 2021.
However, the beer maker added to its revenue as finance income surged by 18 percent to N598 million in the nine-month period from N506 million in the nine-month period of 2021.
The increase came on the heels of a 223 percent surge in interest income arising from financial assets which totaled N311.11 million in the nine-month period of 2022 from N96 million in the same period of 2021.
Cash position
Guinness Nigeria’s cash and cash equivalents for the nine-month period of 2022 stood at N63.92 billion, 36.64 percent higher than N46.78 billion in the nine-month period of 2021.
Cash flow from operations for the period was N4.68 billion, representing a 56.51 percent decline from N10.76 billion in the nine-month period of 2021. This indicates that although the firm generated enough cash to cover its short-term obligations, the cash available decreased during the period.
However, after paying taxes, the net cash flow reported by the beer maker stood at N-1.03 billion in the nine-month period of 2022.
Net cash flow from investing activities amounted to N-1.18 billion in the nine-month period of 2022 largely due to the purchase of new property, plant, and equipment which amounted to N2 billion.
Net cash flow from financing activities for the period under review stood at N-2.9 billion primarily due to the N6.19 billion spent on the repayment of loans and borrowings during the period.
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