FSDH Initial Reaction: Guinness Nigeria 2Q23 results 
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January 30, 2023/FSDH Research

Key Performance Highlights:

• Guinness Nigeria, a leading beverage and alcohol company, reported a mixed set of numbers for 2Q23. The company recorded revenue growth of 6.4% YoY to N65.6 billion in 2Q23 from N61.7 billion in 2Q22. Domestic revenue increased a robust 7.0% YoY to N65.3 billion from N61.1 billion. However, revenue from exports plummeted 54.5% YoY to N259 million in 2Q23 from N570 million in 2Q22. Even though the company’s gross profit margin soared during the quarter, other profitability margins continued to decrease on a YoY basis, mainly driven by the challenging macro environment with rising inflation and increasing operating and finance costs.
   
• Gross profit jumped 13.1% YoY to N24.1 billion from N21.3 billion in 2Q22, as revenues grew more than the cost of sales, resulting in a 216 bps YoY margin expansion to 36.7% in 2Q23. The cost of sales rose 2.9% YoY to N41.6 billion in 2Q23 against N40.4 billion in 2Q22. The company’s other income declined 73.9% YoY to N294 million in 2Q23, primarily driven by lower income from leased assets and the sale of by-products. Marketing and distribution expenses witnessed a marginal increase of 2.2% YoY to N12.5 billion in 2Q23. Advertising and promotion expenses surged 69.4% YoY to N5.2 billion from N3.1 billion in the prior year period. Consequently, Guinness recorded an operating profit of N6.6 billion, down 6.2% YoY, versus an operating profit of N7.1 billion in 2Q22. The operating margin also fell by 136 bps YoY to 10.1% in 2Q23, compared to 11.5% in 2Q22.
   
• The company’s finance income soared 532.1% YoY to N801 million in 2Q23, driven by a 2.5x increase in the interest income from financial assets, which amounted to N721 million. However, the company’s finance costs escalated significantly by 2,177.3% YoY to N4.3 billion in 2Q23, mainly due to loss on the remeasurement of foreign currency balances (2Q23: N1.6 billion), along with the exchange difference on the letter of credits (2Q23: N2.0 billion) and foreign currency loan (2Q23: N0.7 billion). Ultimately, the net financing costs spiralled 57.5x YoY to N3.5 billion in 2Q23 compared to a mere N60 million in 2Q22. Consequently, the company reported a net profit of N1.3 billion in 2Q23 versus N4.8 billion in 2Q22, resulting in a net profit margin contraction of 580 bps YoY to 1.9% in 2Q23. The earnings per share came in at N0.58 per share in 2Q23 versus N2.18 per share in the prior year period.
   
• Looking at the sequential performance, Guinness Nigeria reported a 24.1% QoQ revenue increase in 2Q23. The cost of sales rose 20.1% QoQ to N41.6 billion in 2Q23 against N34.6 billion in 1Q23. Gross profit expanded 31.9% QoQ to N24.1 billion from N18.2 billion in 1Q23, resulting in a margin expansion of 215 bps QoQ to 36.7% in 2Q23. However, the rise in the company’s administrative expenses (+44.8% QoQ), marketing and distribution expenses (+32.9% QoQ) along with higher net finance cost (+85.4% QoQ) and tax expenses (+48.2% QoQ) resulted in net profit decline of 53.6% QoQ to N1.3 billion in 2Q23 versus N2.7 billion in 1Q23.

Market Reaction: The investor reaction to the lukewarm 2Q23 results was subdued as the stock declined 3.71% to close at N70.00 versus a 0.18% loss for the All-Share Index (27/1).

Guinness Nigeria Earnings Highlights 2Q23

Source: Company Financials, FSDH