Guinness Nigeria reduced interest expenses by more than two-thirds year-on-year at the end of its second quarter trading in December 2018. That was the singular event that enabled the brewing company to jerk up profit at the end of the period. This is in continuation of the company’s strategy in the preceding financial year when it slashed finance cost by 54%.
Two favourable developments last year – growth in sales revenue and a drop in administrative expenses are missing so far in the course of the current financial year ending June 2019. The company lost sales revenue over the review period while cost of sales grew and administrative expenses edged upwards.
The result was a sharp drop in operating profit. The saving grace came from the drop in finance expenses that saved more than N3 billion for the company. The development turned a 30% fall in operating profit into a 7% improvement in pre-tax profit.
Guinness Nigeria closed the half year operations in December 2018 with sales revenue of N67.80 billion, indicating a year-on-year decline of 4%. This reflects an industry wide weakness for breweries, as competition has intensified while consumers have restructured their priorities in a tight spending space.
Based on the current growth rate, sales revenue is projected to be in the region of N137 billion for Guinness Nigeria at the end of its 2019 financial year. This indicates that the 4% drop is turnover at half year is likely to follow the company to full year. Turnover had grown by 13.5% to about N143 billion at the end of the prior financial year – a slowdown from 23% growth in 2017.
Rising input cost remains a challenge for the company as it was in the preceding year. Against the 4% decline in turnover, cost of sales increased by less than 2% to N47.30 billion at the end of December. That represents an increased share of sales revenue at 70%, rising from 66% in the same period in the preceding year. This is a sustaining decline in gross profit margin at 30%.
Marketing expenses declined slightly, other income grew by 72% to N472 million and administrative cost was flat at N4.8 billion. With the drop in gross profit however, operating profit dropped by over 30% to N4.64 billion, indicating substantial pressure in the core business of the company.
There was a drop of 59% in finance income, which was more than compensated by a drop of 68% in finance cost to N1.54 billion. This led to a drop of 73% in net finance cost to N845 million, which is the single event that helped the company to head off profit drop during the period.
The company posted an after tax profit of N2.58 billion for the half year ended December 2018, an increase of 21% year-on-year. This represents an accelerated growth in the second quarter. Further acceleration is needed in the second half of the year if the company is to avoid a possible drop in profit at full year.
How to get sales revenue and operating profit growing again will be the challenge of the company’s management in the second half of the financial year. The company had grown after tax profit by 249% to N6.72 billion in the preceding financial year.
A sharp reduction in balance sheet borrowings was a major accomplishment for the company in 2018. This followed an injection of new money through a rights issue programme in 2017. The company’s debt figure has declined further over the first six months of the current financial year.
Guinness Nigeria returned to profit in the 2017 financial year from a loss in 2016. Growing sales and cutting cost were the two factors for the company’s turnaround. One of the two arms – sales revenue growth is missing so far in the current year, as competition has heated up in the brewed products market.
The company earned N1.18 per share at the end of the half year in December, down from N1.41 per share in the same period in the prior financial year. The drop reflects increase in the volume of shares coming from rights issue. It paid a cash dividend of N1.84 per share to shareholders for its 2017/18 financial year.