The continued decline in the profits of Guinness Nigeria Plc (NSE Ticker: GUINNESS) that started a couple of years ago, has culminated in a loss being reported for the first time since 2016 by the company in a financial year.
The 2020 financial year financial statement for the period ended 30th June, 2020, released earlier today and seen by Investogist shows a Loss after tax of N12.692 billion, a whopping 329.38% decline from the N5.483 billion profit after tax reported for the 2019 financial year.
There was no dividend recommendation by the Board of Directors for approval at the forthcoming Annual General Meeting.
Investors reacted negatively to the result during the Nigerian Stock Exchange (NSE) trading session today; the share price of the company lost N1.45, the maximum possible drop in a single day’s trading session to close at N14.15 down from an opening price of N15.60.
- Have you read?
- Capital Importation into Nigeria slumps by 78% in Q2 with Loans accounting for 56% of the total amount
- US stocks hit record highs after Fed Chair Powell says it will allow inflation to rise
- CBN approves Final Licenses to three Payment Service Banks
Analysis of the report: Income Statement
The company recorded a revenue of N104.376 billion for the year in review, 20.63% lower than the N131.498 billion revenue reported for the preceding financial year.
Nigeria is the company’s primary geographical segment as over 99% of the company’s revenue is earned from sales in Nigeria. In the year in review, GUINNESS made sales of N102.579 billion (2019: N124.990 billion) in the Nigerian market and N1.796 billion (2019: N6.507 billion) from exports.
With a 22.24% reduction in its cost of sales, the company was able to moderate the decline in its gross profit to 16.94%, recording N33.330 billion gross profit in 2020 down from the N40.129 billion recorded in 2019. Thus, GUINNESS reported a gross profit margin of 31.93% in 2020, against 30.52% reported in 2019.
There was no reduction in administrative expenses as was seen in the cost of sales, rather there was a 45.47% increase in the administrative expenses and an N11.722 billion impairment loss on property, plant and equipment booked in the year. The operating profit thus declined by 243.12% to a loss of minus N12.832 billion, down from the N8.966 billion operating profit recorded in 2019.
Despite a tax credit of N4.494 billion, GUINNESS profit for the year slumped by 329.38% to a loss of minus N12.578 billion, N18.062 billion lower than the N5.483 billion profit reported in the preceding year.
The company’s EPS as reported is minus N5.74, and it has negative returns on both assets and equity.
Analysis of the report: Statement of Financial Position
Having written off around 11% of its property, plant and equipment, GUINNESS also improved its trade and other receivables, reducing it from N26.018 billion to N18.718 billion.
Overall, the total assets as at 30 June, 2020 was N144.145 billion, a 10.35% decline from a total assets of N160.792 the company had on 30 June, 2019.
On the liabilities; there was no significant change in the company’s total liabilities as at 30 June, 2020 (N71.107 billion) when compared to what it was as at 30 June, 2019 (N71.732 billion).
While there was no significant change on the company’s total liabilities, there was a jump in the current loans and borrowings which will undoubtedly be a cause of concern for the management. The loans and borrowings under current liabilities increased from N5.277 billion as at 30 June, 2019 to N22.800 billion as at 30 June, 2020.
These loans and borrowings the company would have to pay within the next 12 months comprises of;
- N8.725 billion Intercompany 3-months LIBOR +4.75% loan due in May 2021.
- N4.771 billion comprising of 180 days 6% interest commercial paper series 1, and 270 days 6.5% interest commercial paper series 2.
- N2.000 billion short term loan from Stanbic at 8% for 1 year.
The total equity of the company reduced by 17.99%, reflecting the total comprehensive loss that has been taken off the company’s retained earnings. The total equity as at 30 June, 2020 was N73.038 billion, against N89.060 billion reported as at 30 June, 2019.
As at 30 June, 2019, the company’s asset was funded by 55% equity and 45% liability. As at 30 June, 2020, the company’s total asset is being funded equally by the shareholders’ equity and liability.
Analysis of the report: Statement of Cash Flows
A review of the statement of cash flows shows the following;
- Net cash generated from operating activities increased from N13.406 billion as at 30 June, 2019 to N15.296 billion as at 30 June, 2020. The cash flow recorded in the year in review was boosted by the cash injection from the write-off of assets (N11.722 billion).
- Net cash used in investing activities was N10.415 billion, almost 50% lower than the N15.827 billion used for the same activity as at 30 June, 2019.
- The company generated a net cash of N1.719 billion from financing activities, as against N6.730 billion used for the same activity as at 30 June, 2019.
As at 30 June, 2020, the statement of cash flows show that the company had a cash and cash equivalent of N4.961 billion (30 June, 2019: minus N1.788 billion)
Table 1: Financial highlights
About the Company
Guinness Nigeria Plc, (‘the Company’), a public Company quoted on the Nigerian Stock Exchange, was incorporated in Nigeria on 29 April 1950, as a trading company importing Guinness Stout from Dublin.
The Company has since transformed itself into a manufacturing operation and its principal activities continue to be brewing, packaging, marketing and selling of Guinness Foreign Extra Stout, Guinness Smooth, Malta Guinness, Guinness Gold, Harp Lager, Smirnoff Ice, Satzenbrau Lager, Dubic Malt, Snapp, Orijin Spirit Mixed Drink, Orijin Bitters, Smirnoff Ice Double Black with Guarana, Orijin Zero and Orijin Herbal Gin, Baileys Delight, Gordons Moringa among others.
The address of the Company’s registered office is at 24 Oba Akran Avenue, Ikeja, Lagos.
The issued and fully paid-up share capital of the Company is 2,190,382,819 ordinary shares of 50 kobo each (2019: 2,190,382,819 ordinary shares of 50 kobo each).
The Register of Members shows that only one company, Guinness Overseas Limited (a subsidiary of Diageo plc) with 1,099,230,804 ordinary shares (2019: 1,099,230,804 ordinary shares) constituting 50.18% shareholding (2019: 50.18% shareholding) held more than 10% interest in the Company.
Diageo plc also owns another shareholder of the Company, Atalantaf Limited with ordinary 171,712,564 shares (2019: 171,712,564 shares) constituting 7.84% (2019: 7.84%).
Price movement
Trading on the shares of GUINNESS opened today at N15.60, dropping to N15.00 during the trading session, and closed at N14.15, dropping by 9.29% on the day, the maximum possible in a single trading day.
The 52 week high and low prices for the stock are N37.30 and N13.00 respectively.
Shareholders of this globally renowned brand has witnessed a sustained erosion in the value of their investment, as the share price has fallen from as high as N266.00 in 2013, to just N14.15 at the close of trading today.
Source: Mytradebook
Analyst’s view
GUINNESS, just like the other companies in the sector; NB, CHAMPIONS, INTBREW has suffered tremendous loses in recent years, and the loses were exacerbated by the COVID-19 pandemic. They have all seen sustained erosion in their share prices.
GUINNESS statement of financial position still show a fundamentally strong company, and given that without the asset write-off the level of loses would not have been as bad as it is, it will be worth it to keep this company on one’s stock watch for the moment.
We will be taking a position on the stock in our weekly stock pick.
Written by;
Nnamdi M.
