January 31, 2023/InvestmentOne Report

H1 2023 result highlight: Modest Topline performance

• Revenue growth: up 24.13% q/q, 8.55% y/y
• Expansion in gross profit margin: up 215bps q/q, 225bps y/y
• Decline in PBT margin: down 274bps q/q, 577bps y/y
• Contraction in PAT margin: down 324bps q/q, 7706bps y/y

Decent Topline Performance

Last week, Guinness Nigeria Plc published its H1 2023 unaudited financial report which revealed that revenue grew by 8.55% y/y to N118.45 billion in H1 2023 compared to N109.12 billion in the corresponding period in 2022. This was majorly buoyed by increase in sales in Nigeria and export by 8.52% y/y and 10.49% y/y to 117.25 billion and 1.20 billion, respectively. In addition, we posit that consumer spending during the yuletide contributed to the increase in revenue given that households tend to buy more of the company’s products (Malta Guinness, small and big stout) in such periods. Also, price increases on specific brands added to higher revenue as the company attempted to shift cost to consumers. Meanwhile, gross profit margin was positive at 36.66%, as the revenue growth (+8.55% y/y) outpaced the cost of sales (+4.88% y/y).

However, a spike in operating expense drove operating profit down by 7.65% y/y to N12.55 billion from N13.59 billion in the previous period. Precisely, the 60.43% y/y increase in administrative expenses was responsible for the higher operating expense, which is reflective of the heightened inflationary environment. Similarly, market and distribution expense grew by 16.40% y/y amid increased activities to further expand brand awareness.

Higher Finance Cost Impacts Bottomline

More so, bottom-line was suppressed by a significant jump of 436.80% y/y in finance expense which outweighed the substantial 120.84% y/y increase in finance income from the previous year as profit for the period dragged to N4.02 billion, relative to 8.82 billion in the corresponding period last year. In our view, the increase in finance expense may not be unconnected to the depreciation of the naira amid lingering exchange rate quagmire. This caused a notable surge in exchange difference on foreign loan (+433.00% y/y), letter of credit (+368.17%) and remeasurements of foreign currency balances (N2.74 billion in H1 2023 from N0.25 billion in H1 2022). Consequently, earnings per share (EPS) declined to N1.84 from N4.03 recorded in H1 2022. The tax expense in the period was N3.21 billion, 22.65% down from N4.15 billion due to the overall decline in profit for the period.

Sequential Performance

On a q/q basis, gross profit increased by 31.87% as the growth in revenue (+24.13%) outweighed the cost of sales (+20.05%). Consequently, gross margin rose 215bps. However, PBT declined by 20.67% underpinned by increase in OPEX (+36.21%) and net finance cost (+85.45%). Hence, PAT shrank by 53.60% q/q.

Outlook

Going forward, we expect to see the positive momentum in revenue growth sustained, albeit, prevailing economic realities emanating from high inflation, weak consumer demand, persistent FX liquidity constraint and tough business environment should continue to undermine gains in the near term. In addition, increased competition in the sector poses a downside risk to topline growth.

Source: Company’s Financials, Investment One Research