Stock investors price-in Guinness Nigeria N2.34bn loss

A combination of factors including a tough economic environment which is affecting consumer spending, as well as a devalued naira, impacted on Guinness Nigeria Plc overall performance with N2.34 billion loss for the year ended June 30, 2016.
The Nigerian Stock Exchange (NSE) published the financial statement of Guinness Nigeria plc for the review period and the weak results triggered a negative reaction to its shares at the stock market.
Consequently, at the NSE yesterday, Guinness Nigeria plc shares lagged most by N7, from an open level of N100 to close at N93.
The second biggest brewer reported the biggest loss in the past 30 years, recording a loss before tax (LBT) of N2.347billion, against the preceding year profit before tax (PBT) of N10.79billion.
Guinness revenue dipped by 14 percent to N101.973billion from N118.495billion recorded in the financial year 2015.
Also, the financial highlights showed that operating profit declined by 72 percent, from N15.667billion in 2015 to N4.415billion in 2016.
The company’s loss after tax (LAT) stood at N2.015billion in 2016, a remarkable 126 percent decline when compared to profit after tax (PAT) of N7.794billion in 2015.
Guinness Nigeria plc recorded basic and diluted loss per share of 134kobo, a decline of 126 percent against basic and diluted earnings per share of 518kobo in 2015.
Guinness Nigeria said on Wednesday that it had received a $95 million loan from parent Diageo to help it cope with dollar shortages in the West African country caused by a slump in crude prices.
Chief finance officer, Ronald Plumridge said the company’s currency needs were much bigger than it was able to source locally and from its exports and so Diageo had stepped in with the loan.
The loan was priced at 3-month Libor plus 4.75 percent, he said.
Nigeria is in recession due to a slump in oil prices, which has hurt its currency and government revenues.
In June, the Central Bank floated the naira to try to resolve the dollar shortage and to preserve its dwindling foreign reserves. The naira lost a third of its value after the float.
“Longer term, we intend to source raw materials locally,” Plumridge told an analysts’ call. “The mix of the business, FX impact and inflation, put pressure on the growth.”
“The combination of a tough economic environment and challenges with naira devaluation had a significant impact on Guinness Nigeria’s overall performance. Our performance this year was impacted by two major factors, one being the very tough economic challenges around consumer spending, driving consumer preferences towards value brands across the sector.
“The other, and more significant factor being the effect of FX policy and the devaluation of the naira. When you take out the impact of the latter, our underlying performance for the year was broadly in line with the prior year in spite of the pressure on the top line,” Peter Ndegwa, Managing Director/Chief Executive Officer, Guinness Nigeria Plc said in a statement following the weak earnings.
In their first reaction to these results, the Tunde Abidoye team of financial analysts at Lagos-based FBNQuest said: “We believe that the spike in net interest expense is most likely related to exchange rate losses (related to raw materials imports) driven by the downward movement of the naira to around N282 per US$ in June 2016 vs N199 previously, following the Central Bank’s adoption of a more flexible FX regime.”
As for the topline, the analysts said that growth was “adversely impacted by consumers down-trading away from mainstream brands to value brands due to Guinness’ limited representation in the latter category.
“Given the weak results, we expect to see marked downward revisions to consensus 2017E PBT forecast and a negative reaction from the market. On our published forecasts, Guinness Nigeria shares are trading on a 2017E (end-June) P/E multiple of 70.9x for an 18% decline in EPS in 2018E. These compare with the 32.6x multiple for 12% EPS growth that rival Nigeria Breweries is trading on. Guinness Nigeria shares have underperformed the index this year. They have shed -16.9% ytd, compared with the -1.5% return on the index. We rate Guinness Nigeria shares Underperform. Our estimates are under review,” FBN Quest analysts further stated.
Babatunde Savage, chairman, Guinness Nigeria Plc, said: “Despite the continuing deterioration in the operating environment, the Board is pleased to note that our core brands of Guinness FES and Malta Guinness are in growth and we now have a strong participation in the growing value segment of the market through Satzenbrau and Dubic.
“We have also started to see early signs that our decisions to acquire the distribution rights in Nigeria to the International Premium Spirits brands of Diageo and to invest in local capacity for spirits manufacturing are the right ones for the business.”
In January 2016, Guinness Nigeria acquired the distribution rights for Diageo, its parent company’s International Premium Spirits (IPS) like Johnnie Walker, Ciroc and Baileys in Nigeria. Also in the course of the financial year, the company acquired the rights to distribute brands from India’s United Spirits Ltd (USL) for brands like McDowell’s whisky.
Guinness has also announced an investment of GBP12m into its Benin plant for the manufacture of mainstream spirits, locally produced spirits that are offered at a lower price point when compared to imported spirits.
Ndegwa continued: “Following the acquisition of distribution rights for IPS and USL brands, we are the first and only total beverage alcohol (TBA) business in Nigeria offering the widest range of drinks – from adult premium non-alcoholic drinks (APNADS) to lager, stout, mainstream spirits and IPS. This puts us in a great position to continue to offer consumers quality brands, giving them a choice at every category and price point.
“Additionally, innovation continues to be a strong platform for us, we have a highly successful track record with about 60% of our beer and non-alcoholic business now comprised of innovation products launched in the past four years. So innovation continues to be one of our competitive advantages in this market and we have a strong innovation pipeline into F18.
“This is testament to our intention to continue to invest behind growing the Nigerian market for both beer and spirits. Despite the economic headwinds, we continue to be deeply committed to doing business the right way being guided by our Code of Business Conduct ensuring that we engage, in the right way, with everyone that comes into contact with our company.”