TheCable

Guinness Nigeria Plc has raised its growth momentum on the earnings track in the 2022 financial year ending June. The gain in traction is happening for the second year after the brewing company pushed its way back into profit in 2021 from its worst earnings record in close to a decade in 2020. 

The company’s interim report for half year ended December 2021 shows that it built an after tax profit of N8.8 billion, which is already seven and a third times of its full year closing after tax profit of N1.2 billion for the 2021 financial year. That has already taken the company to the highest profit record in many years.

Profit performance improved from N4 billion in the first quarter to N4.8 billion in the second, showing massive rebounds in quarter-on-quarter reading. Based on the half year growth record, the company is expected to make up fully for its N12 billion loss in 2020 which erased 40 per cent of retained earnings. 

The company’s cruising speed growth in profit pivots on the equally high speed growth in revenue. Quarterly sales revenue numbers show a strong improvement from N47.5 billion in the first quarter to N61.7 billion in the second. 

The figures add up to the half year turnover of over N109 billion the company reported at the end of December 2021. This represents a year-on-year growth of 51 per cent in sales revenue for Guinness, strong growth for the second year after a 54 per cent rise in the preceding year established sales revenue of over N160 billion for the year.

The rebound in earnings performance, therefore, follows a change in trend from two years of declining turnover in 2020 to outstanding growth for the second year in the 2022 financial year. 

Guinness’ management took steps to address one of two major challenges on the side of operating cost. It succeeded in changing the trend of input cost growing well ahead of sales revenue, which posed a headache to management in 2021. Cost of sales had grown ahead of turnover at 62 per cent compared to 54 per cent in the preceding financial year.

The direction changed from the first quarter of the current financial year when input cost grew by 40 per cent to N32 billion against 58 per cent growth in sales revenue to N47.5 billion. This was sustained in the second quarter when the cost of sales grew by 31 per cent to N40.4 billion compared to 45.6 per cent increase in sales revenue to N61.7 billion. Cost of sales, therefore, claimed a reduced share of sales revenue in the second quarter at 65.5 per cent compared to about 68 per cent in the first.

The company’s year-on-year reading reflects the moderation in input cost compared to the preceding year’s performance. At N72.6 billion at half year, cost of sales grew by 35 percent year-on-year compared to 51 percent growth in turnover.

The proportion of sales devoted to meeting input cost went down to 66.5 per cent at the end of half year operations from 74.3 per cent in the same period in the 2021 financial year. The slowdown lifted gross profit by 96.4 percent to N36.5 billion at the end of half year operations in December 2021.

The other major operating challenge, which is rapidly growing marketing and distribution cost, however, remained. At N18.8 billion at half year, marketing and distribution expenses continued growing well ahead of sales revenue at 76 per cent year-on-year compared to the 51 per cent growth in turnover. 

This means the cost of marketing and distribution used to generate the naira of sales revenue grew from less the 15 kobo in the same period in the last financial year to over 17 kobo so far this financial year. It is a sustaining increase in the cost of marketing and distribution per naira of sales from 16 kobo at the end of the 2021 financial year. 

Three favourable developments on the sides of both costs and income helped to counter the incursion of marketing and distribution expenses on revenue. These include an outstanding increase in other income, which is sustaining for the second year. 

Other income advanced by 97 per cent year-on-year to N1.4 billion after rising by 105 per cent to over N1 billion at the end of the preceding financial year. 

On the side of cost, administrative expenses moderated relative to sales revenue at an increase of 12 per cent to N5.5 billion at the end of half year operations. Some cost saving there helped to boost operating profit, which surged up by 266 per cent to N13.6 billion.

The third supporting angle to the company’s outstanding growth in profit came from a deeper cut in finance expenses than marginal trimming made in the preceding year. Finance expenses dropped by 54.6 per cent year-on-year to N1.2 billion at half year while finance income rose by 89 percent over the same period.

The good combination of high growth in finance income and a sharp drop in finance cost produced a huge drop of 74.4 per cent in net finance cost to N619.6 million at the end of December 2021.

 The favourable development for Guinness Nigeria powered the big turnaround from a net loss of N317 million in the same period in the prior financial year to an after tax profit of N8.8 billion at half year operations ended December 2021.