FREE

Guinness Nigeria PLC FY'21 Earnings Release - PAT momentum thwarted by cost pressures

Guinness’ released its FY’21 audited Financial Statements, reporting a bottom-line figure of ₦1.3 billion, from a ₦12.6 billion loss in FY’20. Although this was a positive performance given the after-tax loss it recorded in FY’20 (₦12.6 billion), the figure fell short of our ₦3.4 billion expectation due to higher-than-expected tax charges and inflationary pressures. Management has proposed a ₦0.46 dividend payment for the year, which would represent an 80% payout ratio (FY’19:61%). However, relative to its current trading price, this places it at a dividend yield of 1.5%.

We could say that Guinness was the hardest hit brewer during the thick of the pandemic last year, going by its Revenue performance. The closure of physical alcohol sales points significantly impacted Sales, causing retailers to embark on a destocking campaign to manage their inventory to sales ratio. Although Guinness maintains healthy Revenues from its Guinness (+50% y/y) and Malt (+50% y/y) segments, it is gradually positioning itself as a spirits-focused company with an ongoing mandate over the past 3 years to grow Spirits contribution to Revenue to 25% (from 15%). Whilst last year’s economic and social challenges had derailed this action, the company had made significant strides by H1’21 (with spirits contribution at 25%).

Given its negative working capital, Guinness Nigeria’s cashflows strengthened by ₦30.4 billion y/y to ₦35.9 billion. Furthermore, whilst interest rates have spiked up this year, interest expense has remained largely stable (+2% y/y), driven by a ₦6.8 billion reduction in the company’s debt balance. Consequently, the company’s net interest expense declined 3% y/y to ₦4.1 billion. Thus, PBT printed at ₦5.8 billion (FY’20 LBT: ₦17.1 billion). However, the company’s tax expense (₦4.5 billion) eroded into net profit due to a ₦1.5 billion under-provision expense from a previous period.