…Posts N4.66 billion in H1 17
Spiraling cost of production, fueled by a weak naira, combined with huge interest on loans have sank Guinness Nigeria as the company posted back to back losses in 30 years.
The local unit of Diageo Plc posted a loss of N4.66 billion for the 6 months through December compared with a profit of N1.17 billion a year earlier.
Revenue however increased by 19.40 percent to N59.49 billion as price competitiveness and new products offering of low spirit continues to drive volume.
A copious finance cost of N4.56 billion and a 54.50 percent increase in cost of sales to N43.94 billion caused margins contractions and resulted in the huge loss.
“Despite a more aggressive import substitution drive recently displayed by consumer companies including Guinness, Q2 2017 Gross Margins contracted significantly to 24.6% from 43.0% in Q2 2016 and 28.6% in Q1 2017,” said analysts at CSL in a recent note to BuisnessDay.
“We believe the naira devaluation last year June also contributed materially to this contraction,” summed analysts at CSL.
The adoption of a flexible exchange by the central bank last year after jettisoning a 15 month currency peg saw the naira lost about 40 percent of its value against the U.S currency.
Because brewers import between 50 to 60 percent of raw materials, the defacto devaluation of the naira impacted on input costs.
Gross Domestic Product (GDP) contracted by 2.2 percent in the third quarter due to a sharp drop in oil price and a severe dollar shortage.
Inflation for the month of December accelerated to 18.55 percent, the highest in 11 years.
Guinness Nigeria has so much debt in its capital structure and it is exposed to financial risk as debt to equity (D/E) increased to 130 percent in the period under review as against 86.69 percent last year.
Total debt in the balance sheet stood at 47.26 billion 165.25 percent while net finance cost increased by 165.25 percent.
This means the large chunk of the company’s balance sheet is financed through the use of debt.
The Nigerian Brewer has initiated strategic plans to deleverage the balance sheet and reduce exposure to debt capital as the company plans to embark on N40 billion right issues.
The company’s shares closed at N64 on the Nigerian Stock Exchange (NSE) in Lagos. The stock is down 19 percent since the start of the year.
BALA AUGIE
