GUINNESS published its Q2-22/H1-22 (end-Dec 31) unaudited results today, reporting growth of 811.2% y/y in Q2-22 standalone PAT. Consequently, EPS grew by 811.2% y/y to NGN1.85 (Q2-21: NGN0.24); thus, H1-22 EPS came in at NGN4.03 (vs Loss Per share of NGN0.14 in H1-21). The positive outturn in EPS was due to a surge in topline growth (+45.7% y/y) amid the moderation in net finance cost (-86.6% y/y), both of which outweighed the increases in the cost of sales (+31.3% y/y) and operating expenses (+71.4% y/y).
Revenue grew by 45.7% y/y in Q1-22 (H1-22: +50.8% y/y) supported by headline price increases, resilient consumer demand, and improved trade outlet coverage. According to management, revenue grew across all key categories driven by its strategic focus brands –Malta Guinness and Guinness, as well as double-digit growth in mainstream spirits (MSS), international premium spirits (IPS), and the ready-to-drink category (RTD).
Notwithstanding the challenging operating environment and increased cost pressures, gross margin (+720bps) increased to 34.5% in Q2-22 (H1-22: 33.5%) as the topline growth (+45.7% y/y) overshadowed the increases in the cost of sales (+31.3% y/y). According to management, the higher cost of sales was driven by (1) the increase in sales volume, (2) a shift towards the production of more expensive can products, (3) currency devaluation impacting the cost of imported raw materials, and (4) the increase in the cost of air freight. The stronger margin also indicates the resilient growth of the company’s key categories – MSS, IPS, and RTD.
Operating expenses grew by 71.4% y/y in Q1-22 (H1-22: +56.0% y/y), driven by the increase in marketing and distribution expenses (+101.7% y/y). The growth in operating expenses reflects the higher volumes following the recovery of on-trade channels and increased marketing investments behind the brewer’s strategic focus brands and categories. Nonetheless, operating profit (EBIT) grew (+126.4% y/y) to NGN7.09 billion in Q2-22, supported by the growth in other income (+129.9% y/y). Similarly, the EBIT margin expanded (+410bps) to 11.5% in the period (Q2-21: 7.4%). Although, EBITDA grew by 28.5% y/y to NGN9.33 billion in Q2-22, EBITDA margin contracted (-200bps) to 15.1% (Q2-21: 17.1%).
Further down, net finance costs declined (-96.0% y/y) in Q2-22, following a contraction in finance costs (-86.6% y/y). Management highlighted that the decline in net finance cost is a result of healthier cash generation – the results show that the company recorded NGN59.23 billion as cash and cash equivalents in H1-22 (H1-21: NGN35.87 billion).
Overall, GUINNESS’s PBT grew significantly by 336.0% y/y to NGN7.02 billion (H1-22: +902.8% y/y) in Q2-22. A tax expense of NGN2.25 billion resulted in a PAT of NGN4.78 billion in the period (Q2-21: NGN0.52 billion).
Comment: We are impressed with GUINNESS’s resilience, evidenced by the sustained double-digit growth in topline and positive surprise in H1-22 EPS, especially amidst the stiff competition in the brewery sector and challenging operating environment. Looking ahead, we expect the company to sustain its stellar performance over 2022FY on the back of resilient consumer demand and improved trade outlet coverage as the brewer continues to optimize its route-to-consumer strategies. Also, we envisage further price increases in 2022FY to offset the higher costs pressures stemming from FX illiquidity challenges and inflation. Our estimates are under review.
