Company Analysis

Guinness Nigeria: Hard drive back into profit


It was a hard drive for Guinness Nigeria pushing aggressively from a loss of N2.55 billion in the third quarter of last year to an after tax profit of N5.09 billion at the end of its third quarter trading in March 2018. The company had to collapse administrative expenses by 25%, slash finance cost by 42% and rein in marketing/distribution expenses to be able to squeeze out the profit.

Management is keen to see the company does not relapse into a loss after returning to profit in the preceding financial year. To defend profit in a situation of stagnating sales volume and rising input cost has warranted squeezing some major costs. Coming hard on cost lines within its control presents a feasible option to counter rising cost of sales and deliver profit.

The company ended third quarter operations in March 2018 with a sales revenue of N105.48 billion, a year-on-year growth of 17.4%. Sales revenue is recovering for the second year from a drop of 14% in the 2016 financial year.

The full year outlook indicates a turnover in the region of 142 billion for Guinness Nigeria in the 2017/18 financial year. This means the growth rate could slow down to 14% at full year. The company had gown sales revenue by 23% to N125.92 billion at the end of the last financial year.

Rising input cost remains a challenge for the company, as it keeps growing ahead of sales revenue. Cost of sales rose by 19.2% to nearly N70 billion at the end of the third quarter compared to the 17.4% improvement in sales revenue. Gross profit increased by close to 14% to N35.58 billion at the end of the review period.

The impacts of the increased incursion of cost of sales on revenue and a drop of 21% in other income were more than compensated by a flat growth in marketing/distribution expenses and a drop of over 25% in administrative cost.

The favourable cost behaviours lifted operating profit by 155% to N10.68 billion at the end of the third quarter. This is one of the two most significant events in the company’s income statement during the period in review.

The second is a drop of 42.4% in finance expenses to less than N5 billion over the same period. With some improvement in finance income, net finance expenses went down by 57% at the end of the third quarter.

The developments boosted the company’s profit capacity, shifting the bottom line from a loss of N2.55 billion in the same period last year to an after tax profit of N5.09 billion at the end of the third quarter. This is already more than 165% of the N1.92 billion profit the company posted in all of the preceding financial year.

Based on the third quarter performance, after tax profit is projected to be in the region of N7 billion for Guinness Nigeria at the end of its 2018 financial year in June. This will mean multiplying the last financial year’s profit figure well over three and half times.

Guinness Nigeria began to lose profit in 2013 until it hit a loss in 2016. Sustaining the strong recovery seen so far to full year requires that the favourable cost behaviours that created the room for profit are maintained all the way.

There is a major reduction in total balance sheet borrowings from N42 billion at the end of last financial year to less than N17 billion at the end of the third quarter. This is the benefit of the doubling of the company’s equity capital through its rights issue in 2017.

The company earned N2.32 per share at the end of the third quarter against a loss of N1.70 per share in the same period last year. It earned N1.28 per share at the end of 2017 financial year and gave shareholders a cash dividend of 50 kobo per share.

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