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Published On: Tue, Sep 6th, 2016

Guinness Plc: Poor quarterly results, year-end  jitters

Year to date, the company’s price has tumbled 22% dropping from N120.40 in January to N94.00 in September 2016.

Year–on-year, the brewer has seen its share price slide 21.53% from N116.00 to last week’s temporary support price of just over N90.00.

Investors’ migraine has been worsened by the fact that there has been no reason to believe that the lager maker will see a strong reversal in its fortunes anytime soon as its premium brands, Guinness Stout and Harp lager beer continue to lose market share.

Against this background, investors are agitated as all signs are pointing to the fact that the end of year results of the company which is expected to be released soon will be nothing to smile home about.

Before now, Guinness Nigeria Plc had recorded a decline of 83 per cent profit before tax (PAT) in its unaudited third quarter financial report for the period ended March 31, 2016.

The third quarter result showed weaker key headline items as revenue slipped by 18 per cent to N69.6 billion from N84.8 billion in 2015.

Also, the brewer’s pre-tax and after- tax profits also fell by 83 per cent from N1.2 billion to N864 million.

The company’s cost of sales however tumbled by 12.6 per cent from N45 billion in 2015 to N39.4 billion in 2016 (a good sign of managements cost containment efforts), but gross profit declined by 23.8 per cent to N30.3 billion from N39.7 billion while finance income rose 40 per cent to N946 billion.

While the company has blamed the shrinking economy which saw a sharp fall in the price of crude from $114 per barrel in June 2014 to $32 before the end of 2015 as a principal cause of lower domestic demand for its products, independent analysts claim that part of the company’s problem is a palpable loss in market share due to a growing bargain basement market for beer. Premium beer brands are increasingly losing space on the average consumers shopping list as cheaper brands create greater spending flexibility in the face of a biting recession.

The breweries sector of the stock market has been deeply challenged since 2013 and is suffering a decline.

This, many believe, is hurting sales volume and squeezing margins for all the operators.

Low consumer spending has also been fingered for its challenges. Among the troubles of the industry is rising consumer prices and the growing volumes of unpaid workers’ salaries in both the public and private sector, in addition to increasing unemployment. Stiffer competition within the sector also seems to increase the cost of sales now than previously.

Interestingly, the company lost 18% of sales revenue on year-on-year basis at the end of the third quarter in March 2016 and closed the period with a turnover of N69.62 billion.

The company whose drift South became more serious in the first quarter of 2016, had suffered a 76% profit decline in Q1,

After announcing a net revenue of N70bn for the 9months period ended 31st March 2016, Managing Director/Chief Executive Officer, Mr. Peter Ndegwa, observed: “Third quarter sales were impacted by a tough operating environment and the lapping of a very strong quarter in the previous year – particularly with distribution gains for the Orijin brand. The economic slowdown and rise in inflation continue to cause a shift towards lower margin value products.

However, we are starting to make progress in the broadening of our portfolio and also seeing resilience in our core brands. We are also focused on driving efficiency throughout our operations to address the continuing pressure on margins. We anticipate that the year will be challenging as we incurred one-off costs to reshape our business and continue to broaden our portfolio in order to drive future growth.”

Analysts are almost sure that Guinness Nigeria will not be able to post a better performance in the current year 2016 than the results of the period ended June 2016. Some of them have hinged their fears on the unfavourable operating environment, especially the prevailing economic recession.

A Lagos based analyst, Mr. David Adonri, Managing Director of High-Cap Securities ltd, told Business Hallmark that Guinness Nigeria has not been posting impressive results for some time now. He explained that posting strong performance was even more difficult in an economy in recession. ”I doubt the company can post stronger performance than last year”, he said.

The President, Association of StockBrokers Houses of Nigeria, Mr. Emeka Madubike believes that nobody can accurately predict the future performance of any company, he expressed reservation over what to expect in the soon-to-be-released results of Guinness Nigeria Plc.

The company had for the period ended 30th June 2015 reported 9% increase in net sales during the year.

The results then reflected strong volume growth on the back of year-on-year impressive performance of its innovation and value brands.

Ndegwa had said at that time: “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%”.

This performance had prompted the declaration of a gross dividend pay-out of approximately N4.82 billion in respect of the year ended 30 June 2015, that is, 320 kobo per 50kobo ordinary share.

The Company which has a strong portfolio of alcoholic and non-alcoholic beverages such as Guinness Foreign Extra Stout, Guinness Extra Smooth, Malta Guinness, Malta Guinness Low Sugar, Harp Lager, Smirnoff Ice, Satzenbrau Pilsner Lager, Dubic Lager, Snapp, and Orijin appear to have failed to harness their potentials to deliver strong performance.

Guinness’ third quarter results in 2015 also showed an increase in turnover from N78.018 billion in the preceding year to N84.750 billion, translating to an increase of +9.00%. However, its profit before tax (PBT) fell by -9.00% to N7.134 billion from N7.823 billion in the preceding year.

The slide in PBT was due mainly to increase in net interest expense and a depreciation of -3% of other income streams. Similarly, its profit after tax (PAT) slides significantly from N5.943 billion previously to N5.216 billion, a decrease of -12%. It is interesting to know that the downward trends are expected since the fourth (4th) quarter is usually the strongest quarter for the company. Earnings per share also depreciated by -12% to 346 kobo from 395 kobo previously.

On the flip side though, Guinness Nigeria also recently acquired the right to distribute Diageo Plc’s international Premium Spirits (IPS) brands in Nigeria in December 2015.

The company also announced the acquisition of the right to distribute McDowell, a United Spirits Limited brand in January 2016. These acquisitions fill the gaps in the spirits brand base of Guinness Nigeria, allowing it to compete across all categories of the alcoholic beverage market in Nigeria thereby deepening its operations and boosting its balance sheet growth potential in 2016 and beyond.

Despite the brewery industry’s weakness, Guinness Nigeria’s performance recently is a far cry from the better numbers and key performance metrics that its leading competitor, Nigerian Breweries has since churned out.

Brand performance

In the last five years, Guinness performance has been on a steady slide which was halted by its introduction of Orjin, a herbal drink in 2013. Orijin was like a shot in the arm for the beleaguered brewer.

It’s sparkling performance helped to save the company before the renewed trend of decline. Within three years in the market, the brand won a sizable chunk of the bottled herbal drinks market. According to a marketing research company, Nielsen Nigeria, Orijin controls over 50 percent market share of the market. However, while Orijn soared, the performance of other brands in the company’s brand portfolio flagged.

Although industry observers may argue that Guinness’ challenges may not be unconnected with its mono -product culture which focuses on its flagship brand, Foreign Extra Stout, the reality is that the company has not been very lucky with innovations (except for Orijin of course). its attempts to broaden its offerings have not been as successful as efforts by its arch rival, Nigerian Breweries.

Although older brands such as the Foreign Extra Stout, introduced in 1962),Harp, Malta-Guiness  have weathered fierce competition with more than a few bruises, latter additions like Harp Lime, Gordon’s Spark and Armstrong Black Lager have not fared as well.

Even latter arrivals such as Dubic Extra Lager, launched in April 2012 and SNAPP, born in September 2012 are yet to make impressive inroads in their respective market segments due to stiff competition and the inability of Guinness to reinvent itself in the face of market dynamics.

For instance, as part of its expansionist plan, Nigerian Breweries bought smaller breweries in response to a decline in demand for premium brands and in anticipation of playing in the low-end market segment while Guinness stood stiff watching unperturbed.

Now, that the horse has left the stable, the pressure to return the company to profitability has increased in a very challenging climate that has seen a frenetic change of leadership with the appointment to four successive Managing Directors in three years. Industry observers have noted that the frequent change of leadership is symptomatic of the troubles at Guinness.


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