Guinness full year results: Top-line growth amidst competitive environment

Recently at the Nigerian Stock Exchange (NSE), Guinness Nigeria plc, a subsidiary of Diageo plc released its full year results for the period ended June 30, 2015. Guinness reported 9 percent increase in revenue to N118.495billion from N109.202billion in the corresponding year 2014.

The company’s Profit Before Tax (PBT) declined by 8 percent to N10.795billion from N11.681billion in 2014; while Profit After Tax was down by 19 percent to N7.794billion from N9.573billion in 2014.

The company’s Basic Earnings per Share (k) which is the portion of its profit allocated to each outstanding share of common stock declined by 19 percent to 518kobo from 636kobo.

Pending the approval of its shareholders at its annual general meeting holding November 26, 2015, Guinness has proposed dividend payout of N4.818billion. The closure date for qualification if October 12, 2015; while date of payment of the proposed dividend is November 27, 2015.  The proposed dividend translates to 320 kobo per 50 kobo ordinary share.

While commenting on the result, Peter Ndegwa, managing director/Chief Executive Officer, Guinness Nigeria plc said, “We delivered a 9 percent increase in net sales during the year in a tough trading environment largely driven by the growth in our ready-to-drink (RTD) category and value beer segment.”

“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 percent”, he added.

“Guinness PBT declined by 8percent year-on-year (y/y) because operating (opex) and net interest expense increased by 14 percent y/y and 10 percent y/y respectively. Further down the profit and loss (P&L), a higher effective tax rate of 27.8percent, compared with 18percent in 2014, resulted in PAT declining by 18percent y/y”, FBN Capital analysts said in their reaction to Guinness full year results .

In a statement, Babatunde Savage, chairman, Board of Directors of Guinness Nigeria plc stated, “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”.

Brands from the stables of Guinness Nigeria plc include Guinness, Foreign Extra Stout and Extra Smooth, Malta Guinness, Harp Lager, Dubic Lager, Snapp and Orijin. Guinness Nigeria Plc is a member company of Diageo Plc; the world’s leading premium drinks business with an outstanding collection of brands such as Johnnie Walker, Smirnoff, Ciroc, J&B, Baileys, Cuervo, Tanquery and Captain Morgan amongst others.

Nigeria delivered 13percent volume growth driven primarily by the national roll out of Orijin, according to Diageo plc in its 2015 preliminary results fast facts. “This year we launched our new ‘made of black’ campaign in Africa to capture the next generation of Guinness consumers. Beer was up 8 percent net sales in the region”, it noted.

FBN Capital analysts said the beer volumes growth of 13percent y/y, implies “a volume-price mix skewed in favour of value brands.”

“Following the challenging macro-environment and the squeeze on household wallets, growth in the mainstream segment has been constrained, with more growth seen in the value segment due to down-trading by consumers. Although we believe that the 16 percent y/y rise in opex in fourth-quarter (Q4) was most likely due to increased spending on advertisements, we await management’s clarification on this line,” the analysts added.

According to Tunde Abidoye led team of research analysts at FBN Capital, “Given that Guinness Nigeria full year PBT of N10.8billion came in around 6 percent ahead of consensus, PBT forecast of N10.2billion, we expect a neutral to slightly positive reaction from the market.”

“On our published forecasts, Guinness Nigeria shares are trading on a 2016E (end-June) P/E multiple of 21.4x for 22percent earnings per share (EPS) growth in 2017E. These compare with the 22.9x 2015E multiple for 20percent EPS growth in 2016E that rival Nigerian Breweries is trading on. Guinness shares have underperformed the index ytd, shedding -23.9percent versus the -14.8 percent return on the NSE index. We rate Guinness Nigeria shares ‘underperform’. Our estimates are under review.”

After initial appreciation by N1 at the beginning of trading this week, the share price of Guinness Nigeria plc fell by N3.7 Tuesday from Monday level of N129 to N125.3.

According to Proshare analysts, key takeaways from the financial year earnings presentation of Guinness Nigeria plc as presented by the management of the firm are: “Strong top line performance was recorded amidst intense competitive environment; company recorded growth in market share; the company’s gross profit grows in line with its sales as Strong volume growth help improve its capacity utilization; the board is recommending an unchanged dividend per share (320kobo) which is about 62% of distributable profit; and the firm intends to develop strategies to control cost regardless of FX fluctuations”.

The analysts noted further that Guinness Nigeria plc is committed to pursuing its five key performance priorities which will help the company to win in the market.

These include: strengthening and accelerating its premium core brands; innovating at scale to meet new consumer needs; building and then constantly extending its advantage in route to consumer; driving out cost to invest in growth; and guarantying its plans with the right people and capabilities.

Iheanyi Nwachukwu