FSDH Initial Reaction: Guinness Nigeria 1Q24 results 
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October 27, 2023/FSDH Research

Key Performance Highlights:

• Guinness Nigeria reported a mixed set of numbers for 1Q24. The company recorded revenue growth of 12.7% YoY to N59.5 billion in 1Q24 from N52.9 billion in 1Q23, while the company’s net profit declined 5.6% YoY to N2.6 billion in 1Q24 from N2.7 billion in 1Q23. Domestic revenue grew 13.1% YoY to N58.7 billion from N51.9 billion in 1Q23, while export revenue was down 10.4% YoY to N844 million in 1Q24 from N942 million in 1Q23. As the cost of sales increased due to inflationary pressure, sales volume growth, and currency devaluation impacting the cost of imported materials, the gross profit margin continued to fall on a YoY basis. However, the company’s operating profit grew on a YoY basis as Guinness Nigeria was able to control rising marketing & distribution expenses (-11.7% YoY) and administrative expenses (-6.6% YoY). The increased operating profit, further boosted by other income, resulted in operating margin and EBITDA margin improvement in 1Q24.
   
• Gross profit marginally decreased by 0.5% YoY to N18.1 billion in 1Q24, as the cost of sales grew ahead of the revenue, resulting in a margin contraction of 405 bps YoY to 30.5% in 1Q24. The cost of sales rose 19.6% YoY to N41.4 billion in 1Q24 compared to N34.6 billion in 1Q23. The company’s other income jumped 111.4% YoY to N1.4 billion in 1Q24, primarily driven by an N1.4 billion gain from a promissory note from an Export Expansion Grant. Marketing and distribution expenses fell 11.7% YoY to N8.3 billion in 1Q24. Administrative expenses declined 6.6% YoY to N3.3 billion from N3.6 billion in the prior year period. Consequently, Guinness recorded an operating profit of N7.9 billion, a 33.3% YoY rise, versus an operating profit of N5.9 billion in 1Q23. The operating margin expanded by 205 bps YoY to 13.2% in 1Q24, compared to 11.2% in 1Q23.
   
• The company’s finance income fell 5.6% YoY to N564 million in 1Q24, driven by lower interest income. Moreover, the company’s finance costs shot up 87.8% YoY to N4.6 billion in 1Q24 versus N2.5 billion in 1Q23 due to a loss in the remeasurement of foreign currency balances (1Q24: N2.9 billion) and higher interest payments. Ultimately, the net financing costs spiralled to N4.1 billion in 1Q24, up 117.8% YoY, compared to net financing costs of N1.9 billion in 1Q23. Consequently, the company’s net profit declined 5.6% to N2.6 billion in 1Q24 versus N2.7 billion in 1Q23. The company reported an earnings per share of N1.19 versus an earnings per share of N1.25 in the prior year period.
   
• Sequentially, Guinness Nigeria reported a 4.5% QoQ revenue growth in 1Q24. However, the cost of sales also grew 5.6% QoQ to N41.4 billion in 1Q24 against N39.2 billion in 4Q23. Gross profit marginally increased by 2.2% QoQ to N18.1 billion from N17.7 billion in 4Q23, resulting in a margin contraction of 69 bps QoQ to 30.5% in 1Q24. However, lower marketing and distribution expenses (-14.4% QoQ) and administrative expenses (-17.9% QoQ), and lower finance costs (-89.5% QoQ) resulted in a net profit of N2.6 billion in 1Q24 versus a net loss of N24.0 billion in 4Q23.
   
• On 5 October 2023, Guinness Nigeria announced that it will no longer import or distribute certain Diageo international premium spirits products, including Johnnie Walker, Singleton, Baileys, and others imported under the 2016 Sale & Distribution Agreement with Diageo plc, with effect from April 2024. The move is in line with the company’s long-term growth strategy and in alignment with Diageo plc’s decision to establish a new, wholly owned spirits-focussed business to manage the importation and distribution of its international premium spirits portfolio in West and Central Africa, with Nigeria as one of the hubs.
   
• On 6 September 2023, the company announced the retirement of Ambassador Sunday Dogonyaro, OON, from the Board of Guinness Nigeria Plc, effective 31 August 2023.

Market Reaction: The investor reaction to the 1Q24 results was muted as the stock remained unchanged at N65.00 versus a 0.18% fall for the All-Share Index (26/10).

Guinness Nigeria Earnings Highlights 1Q24

Source: Company Financials, FSDH