As the 2024 fiscal year unfolds, Guinness Nigeria Plc has marked a transition from a pre-tax loss of N22.139 billion recorded for the full year ending in June 2023 to a promising pre-tax profit of N3.818 billion in Q1 2024, which ended in September 2023.
However, the question remains: Can Guinness Nigeria weather the ongoing foreign exchange crises brought about by the devaluation of the Naira to maintain the trend?
In 2023 financial year ended June 2023, Guinness found itself in the red, reporting a pre-tax loss of N22.139 billion, primarily attributed to substantial foreign exchange losses.
These currency-related losses amounted to N49.095 billion, representing 92.14% of the company’s total finance costs. This wiped out the company’s N23.358 billion profit from operating activities.
The last time such a substantial loss was in 2020, when the company incurred a post-tax loss of N12.5 billion.
But unlike in 2020 when the loss was attributed to Covid-19, the 2023 FY loss was attributed primarily to naira devaluation and other macroeconomic headwinds, which are still available and persistent.
The Q1 pre-tax profit of N3.818 billion may offer a sense of reassurance to investors, especially when compared to its peer, Nigerian Breweries, which reported a pre-tax loss of N10.319 billion for the same period.
However, it is essential to highlight that in the 2023 fiscal year, when the company experienced a pre-tax loss of N22.139 billion, it achieved a Q1 pre-tax profit of N4.042 billion.
Notably, the net foreign exchange losses for that period were significantly lower when compared to Q1 2024.
As the Naira continues to depreciate, its impacts will linger, and the challenges associated with foreign exchange will persist, potentially affecting the company’s outlook.
For instance, commenting on its Q1 results, the company stated that despite the strong top-line growth, gross profit remained flat and gross margins declined in comparison to the previous year, primarily because cost of sales growth outpaced revenue growth.
This was mainly due to the inflationary impact of currency devaluation, which could not be fully offset by price increases.
Nonetheless, we are still several months away from June 2024, and there is an expectation that the Naira might experience a strengthening during that period, which could potentially lead to a reduction in the adverse impacts on the company’s foreign exchange transactions.
The company has moderated its operating expenses, and it is imperative that this approach remains consistent.
The company underscored its success in reducing operating expenses from the previous year by concentrating on cost-saving initiatives and improving operational efficiencies, resulting in an impressive 33% growth in operating profit.
Furthermore, the Board maintains a strong belief that, despite the substantial macro-economic challenges confronting the company, its well-crafted strategy remains solid.
The Board said it is committed to continuously reassessing this strategy to adapt to the evolving business environment, with the goal of sustaining value creation for all stakeholders in the medium and long term.
Indeed, providing assurance is of paramount importance to both existing shareholders and potential investors.
However, turning that assurance into tangible results and positive outcomes presents a distinct set of challenges, and achieving them holds great significance for all shareholders and potential investors.
For context, the last time Guinness paid a dividend was for the period ending in June 2022, which subsequently raised shareholders’ expectations for the company to declare a dividend for the period ended June 2023.
However, the company’s decision not to pay dividends for the period sparked concerns among shareholders.
In 2022, the company’s share price had a substantial gain of 77.69%, and investors saw significant returns on their investments. In contrast, this year, there has been a 6.2% decline in the share price.
This indicates that the company’s stock has experienced a decrease in value during this year.
In addition, it appears that the company’s earnings have not been sufficient to cover the existing shares, as reflected in its negative EPS (TTM) at –N8.27.
These matter to the shareholders and potential investors and can influence their sentiment.
The FX challenge has now become a systemic risk that cannot be easily diversified away.
Notably, a significant 65% of the company’s loan book comprises letters of credit loans, indicating a heavy reliance on this specific type of financing.
The situation is intricately linked to the performance of the Naira.
Consequently, the company finds itself in a waiting game to see if the Naira will strengthen, which is essential to prevent slipping into a loss position.
Thank you for this analysis.
I expect Guiness to incur lesser FX losses compared to the previous period as the company announced a decision to sto the importation and distribution of Diageo’s products from April 2024.