Guinness Nigeria (Q2) 2015 profit falter by 19% on competitive pressure, macro headwinds

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Guinness Nigeria Plc on Friday, 4th September 2015, released its second quarter earnings for the period ended 30th June 2015, reporting a 19% drop in profit after tax (PAT) to N7.8bn, from N9.6bn for the same period in 2014. Diluted earnings per share also fell by 19% to 518, from 636 last year. The company’s borrowing cost rose by 10% to N4.9bn, from N4.4bn the previous year.

However, revenue grew by 9% to N118 billion, from N109 billion from the same period in 2014.

In a statement released by the company, they said that the result reflect strong volume growth on the back of year-on-year impressive performance of its innovation and value brands.

Commenting further on the results, the Company’s Managing Director/Chief Executive Officer, Mr. Peter Ndegwa said, “We delivered a 9% increase in net sales during the year in a tough trading environment largely driven by the growth in our RTD category and value beer segment. Our gross profit also grew by 9%. During the year, we continued to invest significantly behind our brands and our route to consumer expansion and these, together with the high interest environment, have driven a profit before tax decline of 8%”.

Guinness Nigeria, one of Nigeria’s most successful companies and second largest brewer in the country had over the last decade delivered impressive shareholder returns by positioning itself in the premium beer segment.

However, with the market entry of SABMiller into a once two-company beer market, the dynamics has changed as SABMiller and Nigerian Breweries both have an impressive roster of products in the value segment. In addition, the squeeze on discretionary income experienced by majority of Nigerian households after the 2012 fuel subsidy removal shifted consumer taste to value brands, a category Guinness was not prepared for.

There had also been challenges for the company in areas of distribution infrastructure and the capacity to meet consumer demand with rationing.

However, in 2011, the company embarked on capacity expansion investment of N55 billion and has since established a presence in the value segment with brands like Dubic, which used to be a regional beer, but has since been rolled out nationally. It also re-positioned Satzenbrau into a key brand in the value segment.

In 2013, Guinness went into an uncharted territory with the launch of Orijin, a new type of alcoholic beverage brewed from African herbs, fruits and spirits. It became a huge success for the company and has helped immensely in boosting sales figures for the company in the ready-to-drink segment.

Unfortunately, the monumental changes made by the company in the past few years has not been enough to shore up the decline in profits, primarily because the macro-economic environment for companies in the Fast Movable Consumable Goods (FMCG) has been quite challenging. FMCG companies are beset by falling oil price, a budget deficit with prospect of government spending cuts and low to no growth in GDP, higher inflation rate at 9.2% as of July 2015, a weak consumer spending, an insurgency in the North of the country, a weaker naira, which has raised the cost of raw materials for companies that partly depend on imports to manufacture goods, in this case, barley.

The Chairman of the Board of Directors of the Company, Mr. Babatunde Savage, said “The current economic environment is challenging for all companies but we look forward to an improvement in the operating environment and are positioned to take advantage of improving consumer confidence that may occur as a result”.

The Board of Directors of the Company had also recommended, subject to approval at the next Annual General Meeting, slated to hold on 26th November 2015, the declaration of dividend of approximately N4.82 billion in respect of the year ended 30 June 2015, that is, 320 kobo per 50 kobo ordinary share. The dividend recommended, if approved at the Annual General Meeting will be paid to shareholders on 27th November 2015.

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