FSDH Initial Reaction: Guinness Nigeria 3Q23 results 
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May 2, 2023/FSDH Research

Key Performance Highlights:

• Guinness Nigeria reported a mixed set of numbers for 3Q23. The company recorded revenue growth of 7.4% YoY to N54.0 billion in 3Q23 from N50.3 billion in 3Q22, while the company’s net profit tumbled 71.5% YoY to N1.8 billion in 3Q23 from N6.5 billion in 3Q22. Domestic revenue grew 7.3% YoY to N53.6 billion from N49.9 billion, while export revenue was up 19.0% YoY to N464 million in 3Q23 from N390 million in 3Q22. However, the company’s profitability margins, including the gross profit margin, continued to fall on a YoY basis during the quarter, driven by the challenging macro environment with rising inflation and increasing operating and finance costs.
   
• Gross profit declined 12.5% YoY to N18.1 billion from N20.7 billion in 3Q22, as the cost of sales grew more than the revenues, resulting in a 759 bps YoY margin decline to 33.5% in 3Q23. The cost of sales rose 21.2% YoY to N35.9 billion in 3Q23 against N29.6 billion in 3Q22. The company’s other income increased significantly to N526 million in 3Q23 compared to a loss of N32 million in 3Q22, primarily driven by gain on disposal of property, plant and equipment. Marketing and distribution expenses increased 4.0% YoY to N9.6 billion in 3Q23. Administrative expenses surged 95.8% YoY to N4.1 billion from N2.1 billion in the prior year period. Consequently, Guinness recorded an operating profit of N4.9 billion, a decrease of 47.5% YoY, versus an operating profit of N9.3 billion in 3Q22. The operating margin also fell by 944 bps YoY to 9.0% in 3Q23, compared to 18.5% in 3Q22.
   
• The company’s finance income declined by 9.7% YoY to N397 million in 3Q23, driven mainly by decreased accrued interest and gain on remeasurement of foreign currency balances. However, the company’s finance costs escalated significantly by 10.8x YoY to N2.6 billion in 3Q23, mainly due to loss on the remeasurement of foreign currency balances (3Q23: N3.2 billion), along with the exchange difference on the letter of credits (3Q23: N2.1 billion) and accrued interest of N1.9 billion. Ultimately, the net financing costs spiralled to N2.2 billion in 3Q23 compared to a net financing income of N203 million in 3Q22. Consequently, the company reported a net profit of N1.8 billion in 3Q23, down 71.5% YoY, versus N6.5 billion in 3Q22, resulting in a net profit margin contraction of 943 bps YoY to 3.4% in 3Q23. The earnings per share came in at N0.84 per share in 3Q23 versus N2.95 per share in 3Q22.
   
• Sequentially, Guinness Nigeria reported a 17.6% QoQ revenue decline in 3Q23. However, the cost of sales was down 13.5% QoQ to N35.9 billion in 3Q23 against N41.6 billion in 2Q23. Gross profit contracted 24.8% QoQ to N18.1 billion from N24.1 billion in 2Q23, resulting in a margin contraction of 317 bps QoQ to 33.5% in 3Q23. However, lower marketing and distribution expenses (-23.2% QoQ) and administrative expenses (-20.3% QoQ), lower finance costs (-39.6% QoQ) and lower tax expenses (-54.8% QoQ) resulted in net profit rising 44.3% QoQ to N1.8 billion in 3Q23 versus N1.3 billion in 2Q23.

Market Reaction: The investor reaction to the lukewarm 3Q23 results was muted as the stock closed flat at N70.00 versus a 0.32% gain for the All-Share Index (28/4).

Guinness Nigeria Earnings Highlights 3Q23

Source: Company Financials, FSDH