Although the company has been adopting various strategies to it deliver improved results and declare higher dividends to shareholders, the challenging operating environment has been affecting the performance of the company.
Going by the half year unaudited results of the
Corporate Profile Guinness Nigeria, is a subsidiary of
It became listed on the Nigerian Stock Exchange NSE) in 1965. After is first brewery in Ikeja,
The company built a second brewery in
The shares of
The board of directors of
Guinness made efforts to manage its costs by reducing cost of sale, and financing cost. Cost of sale fell by 16 per cent from N32.6 billion to N27.5 billion. Operating expense (Opex) recorded a marginal decline of one per cent from 17.45 billion to N17.63 billion, while financing cost depreciated by five per cent from N1.894 billion to N1.782 billion.
CEO's Explanation Explaining the half year performance, Adetu attributed it to three major factors. The first thing, he said, is down trading in the company's value brand due to the discretionary income of consumers that was affected especially in the first quarter of that half year.
"That segment is a segment that
But we have seen that the market is going the direction of value segment for brands that are typically priced at N150. Now, we have only just launched a brand in that segment and the brand is yet to gain traction in distribution that would enable us to play competitively with others. So that impacted our performance," the CEO said.
The second thing, according to Adetu is the aggressiveness with which the company priced its products. He added, however, those prices had been reversed to the levels they were before the increase. The third point, he said is the inability of the company to convert some of the opportunities they have around our retail consumers to real outcome.
"So, much as we are displeased with the performance, much as we know we could have done better, we are encouraged by the fact that we are clear on the issues that slowed us down and they are issues that we can address and we have addressed them and therefore we expect that going forward we expect to see improved performance from
Analysts' Assessment Looking at the results, analysts at Dunn Loren Merrifield, a banking investment services firm, said
"In our view, the decline in the revenue was a result of a change in the consumption pattern of alcoholic drinks from premium brands to lower the mass market brands. The decline in the second quarter sales revenue is a reversal of established trend of growth in 2Q sales numbers," they said.
The analysts added that in the six months the company recorded operating expenses (opex) of N16.63billion, showing an increase of increase of 1.0 per cent ompared with N17.45 billion in 2012/13.
The marginal increase in the opex, according to them, was a result of 8.4 per cent increase in administrative expenses to N5.09billion, while marketing & distribution expenses declined by 1.7 per cent to N12.54billion.
"Therefore, operating profit dropped by 28.3 per cent to N8.05billion compared with N11.23billion in the previous year. Similarly, opex/revenue ratio moved up to 33.4 per cent relative to 28.7 per cent in the corresponding period of 2012/13, hence operating profit margin declined to 15.2 per cent against 18.4 per cent in the previous period," they said.
They noted that overall, total cost dropped by 9.8 per cent to N45.10billion against N50.02billion recorded in the same period of the previous year, yet total cost/revenue ratio increased to 85.5 per cent relative to 82.2 per cent recorded in the previous period. They explained that was as result of the lower decrease in total cost compared with the decrease in sales revenue.
Speaking on the interest expenses, the analysts said interest expense declined despite an increase in short-term borrowings.
"In the review period,
Worthy of note is an increase of 367 per cent in short term financing (bank overdraft) to N17.50billion from N3.75billion in the half year 2012/13.
Furthermore, the provision for income tax declined by 53.1 per cent to N1.42billion in the review period compared with N3.02billion. This resulted in the effective tax rate of 22.1 per cent and 32 per cent in the review period and the corresponding period of the previous year respectively, nevertheless after-tax profit declined by 22.2 per cent to N4.50billion compared with N6.42billion in first half of 2013/12. Based on the results, the analysts revised their valuation and put the target price of the stock of
"We employed multiples of price/earnings, price/sales, price/book, and price/cash flow; we also used the dividend discount model valuation methodology.
Consequently, we reviewed our recommendation on the stock of
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