Guinness Nigeria: From recovery to high growth in Q1

Guinness Nigeria is in the second year of turnaround in which its return to profit in the preceding financial year is speeding up to high growth. The brewing company registered a big leap in profit in its first-quarter report at the end of September 2021 from a loss of N842 million in the same period in 2020 to an after tax profit of N4 billion.

This is a sustaining gain in momentum after recovering from a loss of N12.6 billion in the 2020 financial year to a profit of N1.2 billion at the end of the 2021 financial year last June.

Two underlying factors for the company’s huge loss include a drop of 21 percent in sales revenue to N104 billion in 2020 – the lowest turnover figure in years. The other is an impairment loss of about N12 billion incurred in the year.

The turnaround force for the company equally lies in rebuilding sales revenue for the second financial year as well as the absence of impairment loss. Sales revenue climbed to a five-year peak at over N160 billion in the 2021 financial year, which enabled the company to return to profit.

The rebound in sales is being maintained in the current financial year with first-quarter sales revenue advancing by a clear 58 percent to N47.5 billion year-on-year. A change of trend from declining turnover to one of outstanding growth has been the high point of the company’s earnings story since 2021.

Based on the first-quarter sales figure, the company’s turnover could approach the region of N200 billion at the end of the 2022 financial year next June.

Redirection of sales from declining to accelerating growth seems to be the result of management’s actions to step up growth of spirits and launch innovative ways to court consumer demand.

The strength for the high-profit growth also draws from cost moderation and reduction in some key cost lines. Impairment loss has completely disappeared in the first quarter after dropping from the height of roughly N12 billion in 2020 to N533 million in 2021.

The company has overcome the challenge it faced in the prior financial year of inability to grow sales revenue at low input cost. A moderated increase in cost of sales afforded the company a significant cost saving during the period.

At N32 billion, cost of sales grew at a slower pace than sales at 40 percent compared to 58 percent. This is unlike in the preceding financial year when input cost grew well ahead of sales revenue.

The cost-saving created room for the company to convert an increased share of sales revenue into gross profit. The proportion of turnover claimed by input cost went down from 72 percent to less than 68 percent over the review period.

Gross profit soared by more than 117 percent year-on-year to stand at N15 billion at the end of the first quarter. The high rise reflects the accelerating growth in sales revenue and a general slowdown in costs.

Further cost moderation was achieved from operating expenses. These include marketing and distribution cost, which slowed down relative to sales at an increase of 42 percent to N6.6 billion and administrative expenses that rose by 19 percent to close at N2.4 billion in the first quarter.

The slowdown in operating expenses powered operating profit – which multiplied 11 times to close at N6.5 billion for Guinness Nigeria in the first quarter.

A drop of 38 percent in net finance cost to N559 million during the review period still added to the company’s favourable cost-income balance in the first quarter.

The drop in net finance cost reflects an increase of close to 10 percent in finance income to N506 million and a drop of 22 percent in finance expenses to stand at N1 billion.

Whether the drop in finance charges will sustain is a point to watch, as borrowings are on the rise once again from N16 billion at the end of the 2021 financial year to N20.5 billion in the first quarter.

The company had cut down its debts from nearly N23 billion at the end of the 2020 financial year to N16 billion at the end of the 2021 financial year.

The drop in net finance cost provided the major turning point for the company from a loss of N842 million in the same period in 2021 to an after tax profit of N4 billion at the end of the first quarter operations.

The company’s first quarter performance gives a strong indication that it is on the way to an outstanding leap in earnings in the 2022 financial year. Guinness has not seen profit numbers this big in a number of years.

The company’s best year in the past five years was 2018 when it posted an after tax profit of N6.7 billion for the year.

Dividend prospects are improving as well with the rebuilding of retained earnings after a 40 percent drop that followed the company’s loss in 2020. Retained earnings are up from N25.7 billion at the end of the preceding financial year to N30.7 billion at the end of the first quarter.

Shareholders are expected to approve a cash dividend of 46 kobo per share for the 2021 financial year in the company’s upcoming annual general meeting.