Guinness Nigeria Plc released its first quarter result for the period ended September 2014 with yet another year on year drop in profits. Profit after tax was N1.4billion compared to N1.7billion posted a year earlier. Revenue growth was also slow at N21billion and 6% lower than the N22billion posted a year earlier. On the face of it, this would seem like another bad quarter.However, and on the contrary this was indeed a good quarter when you look at pre-tax profits.
Guinness post a pre-tax profit of N1.9billion and 5% higher than the N1.8billion it posted a year earlier. Even though it is still far from the N2.6billion it posted two years earlier, an inkling of a return to some growth is bound to raise hopes. Something else however bothers me about Guinness Plc and it’s one I have been observing for a while now. Take a look at the table below;
Guinness has generated N66.9billion in operating cash flows in the last three years. Considering the drop in margins as well as competition, this is a considerable amount of cash to have been generated over three years. However, they have spent about N42billion of that cash on investments and another N9.5billion on debt servicing and repayments between 2012 and 2013.
This has ensured a negative cash generation of N6.4billion for the last three years. Whilst cash generated turned positive at N2.1billion in 2014, this is basically due to a lower cash spent on financing for 2014. Guinness still has about N36.5billion in debts which still has to be repaid in the coming years, putting much more pressure on cash generated from operations. Guinness also hasn’t been very strong on working capital, posting negative working capital in the last 3 years.
Shareholder value
For Guinness to continue to sustain dividend payouts, it sure needs to grow its revenue, generate positive working capital and increase net operating cash flows to above N25billion yearly. The N19billion generated in 2014 cannot sustain the debt commitments except it doubles down significantly on its expansion activities and investing in its brands. Nothing however, suggest a major doubling down will be occurring anytime soon as it has spent N3.3billion net on investments in the first quarter of 2015.
This ensures we will be keeping a close watch on their net operating cash flows and how they are able to utilize it across the entire cash value chain.
