Guinness Nigeria cuts spending on creditors to pay shareholders

Guinness Nigeria’s strategy to cut its spending on creditors in finance expenses to build wealth for shareholders has been achieved. This is the summary of the company’s operating results for the 2018 financial year, thus paying back investors in their good coin of availing the company new money last year that permitted a cut down in balance sheet borrowings.

The brewing company cut down its balance sheet debts massively in its 2017/18 financial year and consequently mowed down net finance expenses by 54%. In that move alone, management saved more than N4 billion, thereby changing the uncomfortable position in the preceding year when finance costs consumed 74% of operating profit.

The company also saved a lot of cost by hammering administrative expenses, which it forced down by 28%. Distribution cost also went down during the year but major increases in cost of sales and marketing expenses claimed a good part of the costs saved. Yet cost savings were robust enough and with roughly 14% growth in turnover, Guinness Nigeria has reported a 249% advance in net profit for its financial year ended June 2018.

It is a good year for shareholders with a cash dividend of N1.84 already proposed – a big leap forward from a consolation dividend of 50 kobo per share in the preceding year. More than that, it is a hope raising performance for the company that a successful shift has been attained from working for creditors to resuming building wealth for shareholders.

Guinness Nigeria closed full year operations in June 2018 with a sales revenue of N142.98 billion, a year-on-year growth of 13.5%. Sales revenue recovered for the second year from a drop of 14% in the 2016 financial year but decelerated from 23% growth in 2017. This is on target with our projection that sales revenue would be in the region of N142 billion for the company at full year.

Rising input cost continues to pose a challenge to the company, as it grew well ahead of sales revenue at 21.6% compared to the 13.5% improvement in turnover. At over N94 billion at the end of the year, cost of sales claimed 66% of sales revenue in 2018, rising from 62% in the prior year – a sustaining decline in gross profit margin.

Marketing expenses also grew ahead of sales revenue at 18% to over N12 billion, reflecting the tough selling environment requiring a lot of marketing drive to defend and improve market share. The growth in marketing expenses was more than countered by a drop of 28% in administrative expenses to less than N10 billion and a 7% declined in distribution expenses.

The company therefore lifted operating profit by 31% to N13.4 billion at the end of the year. This is followed by the big news of the year – a drop of 54% in net finance cost to N3.44 billion. The drop reflects some improvement in finance income and a cut down in finance expenses.

A sharp reduction in balance sheet borrowings in 2018 is a direct benefit of the injection of fresh equity capital through a rights issue in 2017. Short-term debts are down by 67% to N5.6 billion and the company’s net gearing ratio has dropped from 82% to 7% over the review period.

The cost savings boosted the company’s profit capacity, setting it on the path of building wealth for shareholders once again. Pre-tax profit advanced by 274% to N9.94 billion while after tax profit rose by 249% to N6.72 billion at the end of the 2018 financial year – which is within the region of N7 billion projected.

The company returned to profit in the 2017 financial year with an after tax profit of N1.92 billion. It sustained profit drops from 2013 until it hit a loss in 2016. Its successful turnaround hinged on a two-pronged approach of growing sales and cutting cost. Its ability to sustain the approach will be tested as competition heats up in the brewed products market with the entry of AB InBev, the world’s largest brewer into the Nigerian market last year.

Guinness Nigeria earned N3.07 per share at full year against N1.28 per share in the prior financial year. It has announced a cash dividend of N1.84 per share payable to shareholders on 25th October 2018. The qualification date is 21^st September 2018.