October 25, 2024/Cordros Report

Guinness Nigeria Plc (GUINNESS) published its unaudited Q1-25 (year-end is June) results yesterday (24 October) reporting a loss per share of NGN5.55, a stark contrast to the earnings per share of NGN1.19 recorded in Q1-24. The sharp decline in earnings was due to elevated cost pressures (+169.6% y/y) and FX loss (+154.6% y/y).
 
In Q1-25, revenue saw an impressive growth of 111.4% y/y (Q1-24 : +12.7% y/y). We attribute the strong topline performance to continuous product innovation and higher pricing, as our channel checks indicated the brewer implemented price increases of c. 22.5% during the period. Moreover, we believe revenue growth was particularly strong in the brewer’s key strategic categories, such as Stout, Ready-to-Serve, and Mainstream Spirits. Export sales also surged by 95.2%, accounting for 1.3% of total revenue in the period.
 
Meanwhile, the gross profit margin contracted significantly by 19.14 ppts y/y to 11.3% (Q1-24: 30.5%), primarily due to a substantial rise in the cost of sales (+169.6% y/y). The higher cost of sales reflects ongoing macroeconomic challenges, including inflation, currency depreciation, and FX market liquidity issues. Accordingly, the brewer recorded an operating loss of NGN6.87 billion in the quarter (vs operating profit of NGN7.87 billion in Q1-24), impacted by the rise in operating expenses (+81.7% y/y).
 
Further down, net finance costs surged by 126.0% y/y to NGN9.17 billion in the quarter due to a 151.2% y/y spike in finance costs. The higher finance costs resulted from a substantial rise in losses from the remeasurement of foreign currency balances (+154.6% y/y) alongside a staggering rise in interest expenses (+958.5% y/y).

Overall, the brewer posted a pre-tax loss of NGN16.03 billion (vs pre-tax profit of NGN3.82 billion in Q1-24). The loss after tax settled at NGN12.17 billion in the period after adjusting for an income tax credit of NGN3.87 billion.
 
Comment: While strategic price increases supported GUINNESS’s topline performance in Q1-24, margins and eventual earnings remained under pressure from rising costs and currency depreciation challenges amidst a challenging macroeconomic environment. Looking ahead, while we anticipate sustained revenue expansion propelled by additional price hikes, modest volume increases and a strategic focus on its margin-enhancing product portfolio, profitability could remain under pressure due to elevated cost pressures and currency depreciation. Our estimates are under review.