Guinness Nigeria faces a year of multiplying loss

Guinness Nigeria is experiencing a worse year in operations after closing its last financial year in the first loss record in years. At the end of its second quarter operations last December, the brewing company reported a net loss of N4.67 billion – already more than 131% above its N2.02 billion loss figure in the preceding financial year in June 2016. If that performance is repeated in the second half, the company could see its 2016 loss figure multiply four to five times in 2017.

Loss of sales revenue was one of the company’s main problems in 2016 but this year looks promising on revenue growth. Finance costs ate up much revenue last year and a worse situation is unfolding so far in the current financial year.

The company’s result for the half year ended December 2016 shows a year-on-year increase of 19.5% in sales revenue to N59.49 billion. This indicates promising prospects for rebuilding sales after a drop in turnover at the end of its 2016 financial year. Export earnings more than doubled to N3.73 billion over the review period but local sales account for over 98% of the company’s turnover. Over the past four years, Guinness grew sales revenue only once in 2015.

Based on the growth rate in the second quarter, sales revenue is projected at N120 billion for Guinness Nigeria at full year. That will be an improvement of 9% after a drop of 14% to N110 billion in 2016. Sales revenue has since remained below the 2012 peak figure of close to N124 billion.

Cost of sales is one of two major cost lines responsible for the rising loss this year. It grew by 54.5% year-on-year to about N44 billion at the end of the second quarter, close to three times as fast as the increase in sales revenue. With that, cost of sales continues to claim increased proportions of sales revenue from 53.6% in 2015 to 59% in 2016 and further to almost 74% at the end of the second quarter.

Gross profit margin has therefore dropped from 41% at the end of the last financial year to 26% at the end of the second quarter. That led to a drop of more than 27% in gross profit to N15.55 billion.

Management saved some cost on marketing and distribution expenses, which dropped by 24% to N9.94 billion during the period. This means the company incurred a significantly reduced marketing/distribution cost to generate the naira of sales revenue during the period. Administrative expenses showed a slight moderation at over 17% relative to sales revenue growth.

The drop in gross profit accounted largely for a drop in operating profit from N3.37 billion in the same period in the preceding financial year to an operating loss of about N85 million at the end of the second quarter.

Finance income more than tripled to N1.53 billion during the review period while finance expenses – the second major rising cost line, rose by over 176% to N6.11 billion. That resulted in a growth of 166% in net finance cost to N4.58 billion. The company’s long-term debts have nearly doubled over the six months period but short-term loans and borrowings have gone down moderately.

Guinness Nigeria ended its second trading in a net loss of N4.67 billion compared to a net profit of N1.17 billion in the same period in the preceding year. The full year outlook is unpredictable as to whether the company could return to profit, slow down the rate of the rising loss figure or maintain it.

Loan repayment and servicing obligations continue to put the company under severe cash flow pressure. More than 70% of the proceeds of new borrowings of nearly N20 billion during the review period were applied to service existing borrowings and leases.

The company lost N3.10 per share at the end of the second quarter compared to earnings per share of 78 kobo in the same period in the preceding financial year. It also lost N1.43 per share at the end of its 2016 financial year.