Guinness Nigeria Plc, the second largest brewer in Africa’s largest economy, has returned to the path of profitability as festive demand and price increases underpinned sales.
The local unit of Diageo Plc post a net income N2.13 billion for the 6 months ended December 2017 compared to a N4.67billion loss it posted in 2016.
Revenue spiked by 22.34 percent to N70.5 billion in the period under review; thanks to festive demand, strong marketing effort and relatively higher price.
The consumer goods giant’s bottom lines got a boost from lower operating costs and finance charges amid a volatile and tough operating environment.
Finance costs otherwise known as interest expense fell by 21.94 percent to N4.73 billion as at six months ended December 2017 from N6.06 billion the previous year.
Times interest coverage ratio stood at 1.85 times earnings. In other words, the company’s operating profit is enough to pay interest expenses.
Guinness total debts (both long and short term dipped by 24.46 percent to N9.82 billion the period under review following a rights issue.
Guinness had been hit by a severe dollar scarcity and devaluation of the currency as the company recorded its loss in 30 years.
However, the introduction of a new foreign exchange window mid last year was a boon for Guinness and other consumer goods firms as dollar supply increased and they are able to import raw material and equipment.
The company’s cost of sales or input costs increased by 13.23 percent to N46.50 billion in the period under review as against N41.12 billion the previous year.
There are indications that input costs could spike 2018 as analysts are bullish on the global price of barley, a major raw material component in the manufacture of beer.
Guinness should brace for intense competition from rival firms as Anheuser-Busch InBev NV, (AB InBev) is seeking to consolidate its three businesses into one listed entity on the Nigerian Stock Exchange (NSE).
Currently, AB InBev indirectly owns 75 percent of Intafact, 82.8 percent of Pabod and 72.2 percent of International Breweries. International Breweries Plc is currently listed on The Nigerian Stock Exchange.
Nigeria’s burgeoning population that craves for consumption is an upside for Guinness.
The country’s per capita beer consumption is about 10 litres a year, compared to a global average of 35-40 litres, according to Morgan Stanley.
An expanding Nigerian middle class and youthful population is helping drive beer demand, according to Euromonitor, which estimates the market was worth about N837 billion or $2.7 billion as at the end of 2016.
Guinness’s shares have broadly tracked the index this year. The hares have returned 17.02 percent year to date (ytd) compared with the 16.73 percent return delivered by the broad index.