Improvement in revenue BUT sustainability is the game-changer for Guiness

Proshare

Friday, February 6, 2015 8:22 AM / DLM Research

Year-on-year revenue improves by 4.8% and 12.8% q/q. In its six months results to December 2014, Guinness Nigeria reported sales revenue of N55.27billion, up by 4.8% compared with N52.76billion in the corresponding period of the previous year. In our view, the company has been reaping the benefits of new products e.g.

Origin Bitters and Origin Ready to Drink,
introduced into the market recently with the improvement in revenue. On a quarterly basis, the company’s revenue of N34.22billion in the second quarter to December 2014 is higher than N21.05billion and N30.35billion posted in the first quarter of the review period and second quarter of the previous year respectively by 62.6% and 12.8%. Similarly, the latest quarter’s revenue is higher than the 8-quarter average of N28.26billion by 21.1%; it also exceeded our estimate of N32.11billion by 6.6%. If the improvement in revenue can be replicated in the quarters ahead, there will be positive impact on the full year numbers.

Cost of sales increases despite decline in the prices of major inputs. For the review period, the company posted an increase of 7.4% y/y in cost of sales (COS) to N29.51billion against N27.47billion in the preceding year. The higher increase in COS relative to revenue led to an increase in COS/revenue ratio to 53.4% relative to 52.1% in the past year. Contrary to expectation, the COS moved up in spite of decline in the prices of grains in the global commodity market which are major inputs in brewing both alcoholic and non-alcoholic beverages. For example, barley and corn traded at average prices of US$127/tonne and US$174/tonne accordingly in the review period, down by 28% and 21% against the average prices of US$177/tonne and US$200/tonne in the previous period. Also, the average prices of wheat and sorghum declined by 15% y/y and 9% y/y respectively to US$260/tonne and US$199/tonne compared with average prices of US$307/tonne and US$218/tonne in the six months to December 2013.

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