April 28, 2023/Cordros Report
GUINNESS Nigeria Plc (GUINNESS) released its Q3-23 (9M-23) unaudited financial results yesterday, which showed that the company recorded a 71.5% y/y decline in Q3-23 standalone EPS to NGN0.84 (Q3-22: NGN2.95). Thus, 9M-23 EPS settled at NGN2.68 (9M-22: NGN6.98). The sharp decline in EPS was driven by a weaker gross margin (Q3-23: 33.5% | Q3-22: 41.1%), higher operating expenses (+21.1% y/y), and net finance cost (NGN2.17 billion vs net finance income of NGN202.82 million in Q3-22).
GUINNESS reported revenue growth of 7.4% y/y in Q3-23 (9M-23: +8.2% y/y). In our view, price and mix optimization across its strategic focus brands, Guinness, Ready-to-Serve, and Spirits supported revenue growth. In addition, resilient consumer demand and improved outlet coverage, as the brewer continues to optimize its route to consumers, remained supportive of topline expansion.
The steep contraction in gross profit margin (-759bps y/y to 33.5%) in Q3-23 (Q3-22: 41.1%) reflects the faster increase in COGS (+21.2% y/y) relative to revenue growth (+7.4% y/y). We believe the cost pressures in the period stemmed from higher input prices amid the high inflationary environment.
Elsewhere, Opex remained elevated, growing by 21.1% y/y in Q3-23 (9M-23: +24.7% y/y), indicative of increased marketing investments to support its strategic growth priorities and target market share improvement. Eventually, EBIT and EBITDA margins printed lower at 9.0% (-944bps y/y) and 13.5% (-915bps y/y), respectively.
Further down, a net finance cost of NGN2.17 billion was recorded in Q3-23 (vs a net finance income of NGN202.82 million in Q3-22), comprising a 984.4% y/y surge in finance costs and a 9.7% y/y decline in finance income. We highlight that the exchange difference on the letter of credits (+608.8% to NGN2.12 billion) and a higher loss on remeasurement of foreign currency balances (+716.3% to NGN3.19 billion) drove the elevated finance costs. Meanwhile, on finance income, there was a 13.4% reduction in short-term deposits in the period.
In Q3-23, Profit before tax settled lower at NGN2.71 billion, representing a 71.5% y/y decline (Q3-22: NGN9.50 billion). Conclusively, the brewer posted a profit after tax of NGN1.84 billion (Q3-22: NGN6.46 billion) in the period following an income tax expense of NGN866.42 million
Comment: GUINNESS’ performance in the quarter was grim in our view, as the brewer continues to ride on a tough terrain characterised by dwindling consumer disposable income and a fragile FX market. The major downside risk as seen in the preceding quarters remains elevated cost pressures, particularly pressures from foreign exchange losses, with that moderated, we expect growth in Q4-23. Looking ahead, we expect further price increases to mitigate rising costs and improve margins. Over the medium term, we remain optimistic about the resilience of GUINNESS’s Total Beverage Alcohol portfolio strategy as a key driver of sustainable growth. Our estimates are under review
