Guinness Nigeria gets back to profit in Q3

Guinness Nigeria Plc has cut its way back into the profit territory from two quarters of losses in its current financial year ending June 2021. The brewing company closed the third quarter trading with a profit of N1.8 billion for its nine months period.

It was a gradual return to profit for the company from a net loss of N842 million in its first quarter, which went down to N317 million at the end of the second quarter following a profit of N524 million for the quarter.

Profit accelerated to N2.2 billion in the third quarter, which cleared the outstanding loss and rekindled hopes for recovering from a historic loss of nearly N13 billion in the 2020 financial year. The change of track from the side of losses to the profit terrain is a critical development for Guinness this financial year.

The company is apparently overcoming the regulatory and operational challenges its chief executive officer, Mr. Baker Magunda, blamed for the initial losses. The gain in momentum is according to our expectation at the end of the second quarter that “the brewing company’s second half is promising in view of a reasonably improved business environment expected to reinforce its return to profit”.

We had posited that “profit performance is expected to gain momentum in the third quarter and the prospects for clearing the loss position at half year and returning to profit at the end of the third quarter are considered quite reasonable for Guinness Nigeria”.

Some positive signals observed in the second quarter were reinforced in the third. These include further strengthening in sales revenue from an increase of below 6 percent at the end of the second quarter to almost 20 percent at the end of the third quarter.

Sales revenue is looking up for the first time in three years for Guinness – pushing up directly from a plunge of 21 percent to the lowest figure in four years in 2020.

There was a further upbeat on the income side with an outstanding growth of other income as well as cost savings on the side of expenses. Other income jumped by 128 percent year-on-year to close at N951 million for the third quarter.

The company saved costs from marketing and distribution expenses – which ended flat at above N18 billion. Also, administrative cost went down by 6 percent to a little above N7 billion.

Further cost saving was realised from a drop in finance expenses by as much as 58 percent quarter-on-quarter. This is a major improvement from the second quarter position when finance cost rose more than two and half times quarter-on-quarter. The big cut in the third quarter resulted in a marginal decline in finance expenses year-on-year at the end of March.

Turnover amounted to N115 billion for Guinness at the end of the third quarter, which is a year-on-year growth of 20 percent. Cost of sales however remains a challenge, which grew well ahead of turnover at 33 percent to N82.5 billion at the end of the period.

The result is that input expenses claimed much of the increase in turnover. While sales revenue grew by N19 billion year-on-year at the end of the third quarter, cost of sales consumed N17.4 billion of it. Only N1.6 billion passed down to gross profit.  Inability to covert the improving sales into profit remains a major challenge to the company’s management.

At the end of the third quarter, the proportion of sales revenue claimed by cost of sales grew from 68 percent in the same period in 2020 to 72 percent. This permitted only a moderate increase of 5 percent in gross profit to a little over N32 billion at the end of the period.

Despite the challenges that remain, favourable developments on both sides of cost and income were strong enough to improve the company’s earnings position in the third quarter. These developments accounted for over 46 percent advance in operating profit to N7.6 billion at the end of the third quarter from just a 5 percent increase in gross profit.

The reduction in finance expenses added significantly to the company’s enhanced performance in the third quarter. Net finance cost went down slightly to N3.2 billion – which reflects a major cut down in interest bearing debts from N23 billion at the end of the 2020 financial year to N12.6 billion at the end of March 2021.

The effect of the debt reduction is that finance expenses claimed a reduced proportion of operating profit at 41 percent in the third quarter against 65 percent in the second quarter. The cost saving here lifted pre-tax profit by over 122 percent year-on-year to N4.5 billion.

Tax expenses claimed N2.6 billion of the figure, leaving an after tax profit of N1.8 billion for Guinness’ shareholders at the end of the third quarter.