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Guinness Nigeria suffers 76% profit decline

By on October 24, 2015

Guinness Nigeria Plc has reported a 76 per cent year-on-year drop in the three months ended September 30, 2015.

The company’s results for the period, which is the first quarter of its financial year ending on June 30, 2015, showed that its profit after tax fell from N1.485bn in the corresponding period of 2014 to N362.3m.

Guinness Nigeria’s profit before tax fell by 74 per cent from N1.963bn to N517.5m, while basic earnings per share declined by 76 per cent from N94 to N22.

A positive for the company in the period is a three per cent year-on-year growth in revenue, which saw it realise N21.742bn in the three months to September 30, 2015 as against N21.048bn in the same period a year earlier.

Guinness Nigeria, however, recorded an 18 per cent increase in cost sales – from N10.499bn to N12.437bn in the review period, while its distribution and administration expenses rose by two per cent from N7.838bn to N8.001bn.

The company’s other income was also down by 25 per cent year-on-year from N193.095m to N144.242m.

Reviewing the results, analysts at FBN Capital Research said although the company’s sales were up marginally by three per cent year-on-year, a severe gross margin contraction of 732 basis points y/y to 42.8 per cent was the major driver behind the y/y limited earnings.

They added, “To a lesser extent, a combination of factors including a two per cent y/y rise in operating expenses and a 25 per cent y/y decline on the other income line also contributed to the marked y/y decline in PBT.

“Sequentially, sales declined by 36 per cent quarter-on-quarter, while PBT and PAT both fell by 86 per cent q/q. Compared with our estimates, the results were weaker on all key headline items. While sales missed by 14 per cent, PBT and PAT missed our forecasts by 72 per cent and 75 per cent respectively, mainly because of the negative surprise (-400bpbs) in gross margin.

According to the analysts, the weak sales growth delivered by Guinness is reflective of the prevailing macro headwinds, the tough operating environment and the squeeze on household wallet.

They added, “Guinness’ Q1 PBT tracks well behind (-73 per cent) consensus full year PBT forecast of N13.2bn. Consequently, we expect to see marked downward revisions to consensus estimates and a negative reaction from the market.”

In September, Guinness Nigeria, which has been hit by serious profit decline in the past two years, notified the NSE that its parent company, Diageo Plc, had the intention of increasing its stake in the Nigerian subsidiary from 54.3 per cent to a maximum of 70 per cent.

The notice said that Diageo, acting through its wholly owned subsidiary, Guinness Overseas Limited, had approached the Board of Directors of Guinness Nigeria Plc with intention of making the offer.

“If Diageo decides to proceed with the proposed transaction, it is intended that, subject to regulatory approval, Guinness Overseas will launch a partial tender offer at a price not higher than N175 per share in cash, giving all shareholders the opportunity to elect to sell some or all of their shares in the company,” the notice had said.

The company, however, stressed that the announcement did not constitute the announcement of an offer itself and created no obligation on Guinness Overseas or Diageo to make an offer.