August 20, 2024/InvestmentOne Report

In the recent release of its audited FY 2024 results, Guinness Nigeria Plc reported continued pressure on its bottom line, with a substantial loss of NGN 54.77 bn. This loss was primarily attributed to the ongoing foreign exchange challenges impacting its foreign-denominated intercompany loans.

Despite these challenges, the company achieved significant revenue growth of 30.53% year-over-year, reaching NGN 299.49 bn in FY 2024. This increase was driven by a price review of several products earlier in the year, including a nearly 30% price hike for its flagship stout. Local sales rose by 30.17% YoY to NGN 295.93 bn, while foreign sales grew even more impressively by 70% to NGN 3.56 bn during the same period.

In tandem with revenue growth, the cost of sales increased by 37.39% YoY to NGN 208.03 bn, reflecting the rising costs of essential raw materials. Operational expenses also impacted profitability, with marketing and distribution costs rising by 20.46% to NGN 49.69 bn and administrative expenses increasing by 15.01% to NGN 19.52 bn. Financial impairment costs surged by 75.57% to NGN 15.99 bn. Despite these cost pressures and high inflation rates, operating profit experienced a modest increase of 8.78% YoY to NGN 25.41 bn.

Foreign Exchange Measurement Cuts Profits :

Further down the income statement, finance income increased by 176.41% YoY to NGN 21.76 bn. This boost was largely due to gains from the remeasurement of foreign currency balances, which increased by 249.19% to NGN 19.29 bn amid currency instability. However, this was insufficient to offset the rise in finance costs.

Finance expenses on loans and borrowings grew by 289.71% to NGN 6.57 bn, while losses from the remeasurement of foreign currency balances, including trade and other receivables, payables, and cash equivalents, surged by 316.77% to NGN 89.36 bn. Additionally, exchange differences on foreign currency intercompany loans increased by 154.46% to NGN 20.49 bn. These elevated costs resulted in a loss before taxation of NGN 73.68 bn, which was mitigated by a tax credit of NGN 18.91 bn, ultimately leading to a net loss for the year of NGN 54.77 bn, marking a 201.45% increase in the rate of loss.

Balance Sheet:

Guinness Nigeria Plc reported a 6.46% YoY decrease in total assets, amounting to NGN 226.13bn. This decline was largely attributed to a significant reduction in current assets, particularly cash and cash equivalents, which decreased by 50.28% to NGN 45.80bn. This reduction highlights the company’s ongoing efforts to address its debt obligations. Additionally, prepayments increased by 287.51%, likely due to major distributors purchasing inventory in advance to mitigate potential price increases. Notably, non-current assets constitute a substantial portion of total assets, accounting for 54.21%.

Further down the statement, total liabilities rose by 20.85% YoY to NGN 223.97bn. This increase was driven by a 21.24% rise in current liabilities, bolstered by a 58.14% growth in trade and other payables, reaching NGN 175.90 bn, and a 72.49% increase in contract liabilities, totaling NGN 2.74bn. Despite these increases, the company managed to reduce some debts, such as current loans and borrowings, which fell by 37.05% YoY to NGN 40.13 bn, contributing to the decrease in cash assets. Equity experienced a sharp decline of 96.17% YoY to NGN 2.16 bn, primarily due to a dramatic drop in retained earnings, which plunged by 688.14% to negative NGN 46.38 bn.

Outlook:

Given this financial position, we recommend a SELL position for Guinness Nigeria, with our current target price valuing the company at NGN 47.70 per share. We expect the firm to continue to post positive topline growth as the firm continues to be efficient in its operations thereby resulting in positive EBIT. However, the foreign exchange instability is expected to negatively pressure the organization. Notably, the organization has come under new leadership from the sale to Tolaram, thereby new changes are expected to be noticed in the new period.

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