Guinness Nigeria Plc is building a loss for the second financial year with a net loss of close to N842 million in its first-quarter trading ended in September 2020. The figure is more than twice the loss of N370 million the company incurred in the same period last year.
The brewing company ended the 2020 financial year in June with a net loss of N12.6 billion and has begun the 2021 financial year with a much bigger loss year-on-year. The company’s troubles last year ran all the way from top to the bottom lines with falling sales revenue facing rising costs.
This year so far, revenue is looking up for the first time in three years but how to tame the cost of sales remains the challenge facing management. Growing almost twice as fast as turnover in the first quarter, input cost isn’t letting any gain in sales get down to gross profit.
Sales revenue had plunged to the lowest figure in four years at the end of the prior financial year and a big leap needs to happen in the current financial year for Guinness to either trim the loss figure or rebuild profit.
Except for the major hurdle posed by input cost, the key elements of the company’s earnings story are showing improvements from last year’s dismal readings. Other income that fell by close to 36 per cent last year grew by 74 per cent year-on-year in the first quarter.
Huge impairment losses that totalled almost N14 billion at the end of last financial year are completely out of the way so far this year. Administrative expenses that rose by 45 per cent in the preceding financial year shifted direction to a drop in the first quarter.
Marketing/distribution expenses dropped against an increase in sales – which afforded the company some cost-saving that it could not extract last year. Finance expenses have slowed down sharply from 74 per cent growth last year to 6 per cent and finance income that dropped by 60 per cent last year came close to doubling at 97 per cent growth in the first quarter.
Net finance cost has therefore changed direction from a 128 per cent upsurge in the previous financial year to a drop of 14 per cent year-on-year in the first quarter. The cost reductions were still insufficient to power the company’s return to profit at the end of the first quarter.
Guinness Nigeria closed the first quarter of its 2021 financial year in September with sales revenue of N30 billion. This is an upturn from a 21 per cent drop in turnover at the end of the preceding financial year to year-on-year growth of 11.6 per cent.
Cost of sales moved on the contrary side from declining slightly ahead of sales revenue in the last financial year to growing ahead of it in the first quarter. At N23 billion, it rose by over 21 per cent year-on-year compared to the 11.6 per cent increase in sales. It, therefore, claimed more than all the N3.1 billion increase in sales revenue, leading to a drop of 11.7 per cent in gross profit to N7 billion at the end of the first quarter.
The average cost per unit of sales went up from 68 kobo at the end of the 2019/20 trading to over 76 kobo in the first quarter. Gross profit margin, therefore, declined from 29 percent to 23 percent year-on-year.
Recovering from a drop of 35.6 per cent last year, other income grew by 74 per cent in the first quarter to N207 million. Marketing/distribution expenses dropped by 11 per cent to N4.6 billion and claimed a reduced share of sales revenue. This is a change of direction from last year when the company paid more in marketing/distribution cost per unit of sales.
Administrative expenses reinforced cost saving with a drop of 8 per cent to N2 billion in the first quarter. The cost savings enabled the company to pull back from a huge operating loss of N12.8 billion last year to an operating profit of N586 billion at the end of the first quarter. That still represents a year-on-year drop of 14 percent in operating profit.
Another positive development for the company came from a leap of 97 per cent in finance income to N462 million in the first quarter. That led to a drop of 14 per cent in net finance cost to roughly N904 million.
Guinness Nigeria ended the first quarter with a pre-tax loss of N317 million, a 14 per cent reduction from a pre-tax loss in the same period last year. A tax expense of N524 million pushed up the post-tax loss to N841.6 billion.
Finance cost is still growing at about N1.4 billion in the first quarter, partly induced by sustaining foreign exchange losses. Balance sheet borrowings are however down from N22 billion at the end of the last financial year to N13.4 billion at the end of the first quarter.
The company lost 38 kobo per share in the first quarter against 17 kobo loss per share in the same period last year. It closed the 2020 financial year with a loss per share of N5.74.