FSDH Initial Reaction: Guinness Nigeria 3Q24 results 
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April 26, 2024/FSDH Research

Key Performance Highlights:

• On 25 April 2024, Guinness Nigeria reported a mixed set of numbers for 3Q24, with a massive revenue growth of 43.8% YoY to N77.7 billion in 3Q24, while reporting a N56.4 billion net loss in 3Q24 versus a N1.8 billion profit in 3Q23. The revenue growth was primarily led by Domestic revenue (+42.9% YoY to N76.6 billion) and further boosted by export revenue (+145.6% YoY to N1.1 billion) as the company implemented proactive pricing strategies and optimized product offering, focusing on premium categories. However, the continued inflationary pressure and currency devaluation resulted in the cost of sales rising 55.8% YoY to N60.0 billion. Although gross profit grew 20.0% YoY to N21.7 billion in 3Q24, the significant revenue increase was more than offset by the cost of sales. Moreover, the gross margin contracted 554 bps YoY to 28.0% in 3Q24.
   
• The company’s other income marginally increased by 4.8% YoY to N551 million in 3Q24. Marketing and distribution expenses soared 19.4% YoY to N11.5 billion in 3Q24. Moreover, administrative expenses jumped 20.4% YoY to N5.0 billion from N4.1 billion in the prior year period. Ultimately, Guinness Nigeria’s operating profit in 3Q24 came in at N5.8 billion, up 19.3% YoY, versus N4.9 billion in 3Q23, driven by robust revenues. However, the operating margin declined by 154 bps YoY to 7.5% in 3Q24, compared to 9.0% in 3Q23, and the EBITDA margin declined by 278 bps YoY to 10.7% in 3Q24.
   
• The company’s finance income vaulted 11.3x YoY to N4.5 billion in 3Q24, owing to a gain on re-measurement of foreign currency balances. However, the company’s finance costs surged 25.8x YoY to N66.3 billion in 3Q24 versus N2.6 billion in 3Q23 due to higher interest payments, exchange differences on foreign currency loans and a major loss in the re-measurement of foreign currency balances. Consequently, the net finance cost shot up to N61.8 billion in 3Q24, compared to N2.2 billion in 3Q23. Although the tax expenses declined 54.4% YoY to N395 million in 3Q24, the company reported a significant net loss of N56.4 billion versus a net profit of N1.8 billion in 3Q23. Furthermore, the company reported a loss per share of N25.76 versus an earnings per share of N0.84 in 3Q23. It is worth noting that the 3Q24 net loss was majorly attributable to the FX losses due to the Naira devaluation; management commented that the trend has recently reversed with a steady appreciation in Naira and the continuation of such a trend is likely to generate FX gains in 4Q24. 
   
• Sequentially, the company’s revenue marginally declined by 6.4% QoQ to N77.7 billion in 3Q24 compared to N83.1 billion. Moreover, the cost of sales marginally grew by 1.3% QoQ to N60.0 billion in 3Q24 against N55.3 billion in 2Q24, resulting in gross profit shrinking by 21.9% QoQ to N21.7 billion from N27.8 billion in 2Q24, resulting in a margin contraction of 552 bps QoQ to 28.0% in 3Q24 (2Q24: 33.5%). Looking at the bottom-line, the higher finance costs (+244.3% QoQ) resulted in a net loss of N56.4 billion in 3Q24 versus N7.8 billion in 2Q24.
   
• On 26 March 2024, Guinness Nigeria provided an update regarding the change in distribution model for imported Diageo International Premium Spirit (IPS) brands. The separation of the IPS brands from Guinness Nigeria’s business (initially scheduled for April 2024) is expected to become effective during the company’s Financial Year 2025.

Market Reaction: The investor reaction to the 3Q24 results was muted as the stock remained unchanged at N54.00 versus a 0.02% marginal fall for the All-Share Index (26/4).

Guinness Nigeria Earnings Highlights 3Q24

Source: Company Financials, FSDH