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Friday, March 24, 2023

Guinness Nigeria Can Self-Fund Growth on Robust Cash Levels 

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Guinness Nigeria has the cash and enough liquidity to pay down debt and fund capital spending as customers pour money into the company even amid the unprecedented economic downturn brought on by the coronavirus pandemic.

Managers of companies pay attention to the working capital management (receivables, payable, cash equivalent) because it enables them to meet the day to day operations necessary to keep their entities going.

Guinness Nigeria cash margin, a measure of efficiency, increased to 62.75 percent in December 2020 from 26.90 percent the previous year, based on MoneyCentral Calculations.

The operating cash flow margin reveals how effectively a company converts sales to cash and is a good indicator of earnings quality. A higher ratio is good as it signals benign efficient levels.

The cash margin is a better measure of profitability than the net profit margin because it is difficult to tamper with cash, and it is easier to investigate using simple bank reconciliation.

In the case of net margins, cost of goods could be suppressed to give a false financial position.

To strengthen its cash position, Guinness Nigeria accelerated the collection period and delayed the payment periods, which underscores the solid working capital circle.

Cash flow from operating activities surged by 147.14 percent to N45.40 billion in the period under review from N18.37 billion the previous year.  Adjusted free cash flow spiked to N6.38 billion in December 2020 from N3.58 billion the previous year

Despite the reintroduction of restrictions in social activities imposed by government to curb the spread of the virus, Guinness Nigeria recorded a 5.88 percent increase in revenues to N72.35 billion in December 2020 from N68.32 million the previous year.

Analysts attribute the uptick at the top line (sales) to a slight increase in the price of key products in the third quarter of last year to fend off the effect of rising cost of production and foreign exchange scarcity.

Diageo (Guinness’ parent company), also launched Guinness Smooth, which drove incremental share within the beer category (recording volume growth of 9 percent across Africa).

Cost Pressures Subdued margins

Guinness Nigeria however saw the prices of most of its input materials skyrocketing on the back of global demand recovery.

Also, the devaluation of the currency has pushed up production costs and the company is unable to pass the high input cost in the form of higher prices to consumers.

The consumer goods giant’s cost of sales ratio increased to 74.15 percent in December 2020 from 70.94 percent the previous year while cost of sales was up 10.91 percent to N53.76 billion in the period under review as against N48.47 billion the previous year.

Gross profit margin fell to 25.68 percent in December 2020 from 29.53 percent as at December 2019.

Brewers in Africa’s largest economy are operating in a harsh and unpredictable macroeconomic environment. The government hiked excise duties on alcoholic and beverage drinks that hit the industry hard.

As the federal government mulls an increase in tariff on electricity and a hike in fuel prices, consumer will have less cash left in their pocket to hit the bar for some bottles of beer.

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