A reminder that Africa isn’t all about positive growth stories.

Guinness Nigeria announced on Thursday a steep fall in profits during the nine months to the end of March – a fall of 24 per cent compared with the same period a year earlier. The reasons? Some are in the company’s control, others not so much.

The fall in pre-tax profits from N17.6bn ($111m) to N13.3bn ($84.5m) was attributed to the expenditure relating to a new production line – a one-off expansion programme to ease capacity constraints. But the disturbances in Nigeria and the increase in fuel prices following the removal of January’s fuel subsidy also contributed.

One person close to the Guinness Nigeria’s parent company, Diageo, said that the violence “hardly helped”, but pointed out that turnover rose 3 per cent to N92bn: “the underlying business is broadly positive.”

Guinness Nigeria’s share price rose 0.01 per cent to 242 on Thursday.

In a letter to the Nigerian stock exchange, Guinness Nigeria was frank about the social impact on the business. It said that “the trading environment in the quarter was affected by the nationwide disturbances in January 2012 caused by the fuel subsidy crisis and subsequent inflationary pressures.”

But the company also highlighted the one-off production line costs: “the time lag between the investment and the benefits coupled with the depreciation and financing costs impacted margins in the quarter… We have cause to believe that our performance will return to the pre-capacity constraint trajectory.”

What the company didn’t mention was that, as the FT reported in March, Nigerian consumers are switching to cheaper brands and consuming less as the fuel subsidy effect takes hold. Guinness may have a good “price mix” among its products, as the company put it, but it can’t stop consumers drinking less.

The nine month statement is a far cry from 2011′s annual results, in which pre-tax profits rose 31 per cent to N26bn. In that annual statement, Guinness Nigeria referred to “another set of amazing outcomes in our peculiar challenging business environment and have set the company on a path of steady growth.”

It was right on one count – “challenging environment”. Not quite so steady.

Related reading:
Lower-spending Nigerians switch brands
, FT
African beer: where to profit
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African beer: brewing returns
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