Guinness Nigeria Plc (GUINNESS) published its unaudited Q1-23 results recently, reporting a 32.0% y/y decline in EPS to NGN1.25 (Q1-22: NGN1.85), on the back of lower revenue generation (+11.3% y/y) as well as a higher operating expense (+44.7% y/y) and net finance costs (+232.8% y/y).
Revenue grew by 11.3% y/y in Q1-23 (Q1-22 : +58.1% y/y). In our view, the decline in revenue is partly attributable to the higher excise duty expense (non-alcoholic beverages: NGN10.00/l; beer & stouts: +14.3% to NGN40.00/cl; spirits: +45.0% to NGN290.00/cl), compared to last year. On a quarter-on-quarter basis, revenue increased by 11.6%, as the topline continues to benefit from price increases.
Gross profit margin increased by 241bps to 34.5% (Q1-22: 32.1%), as revenue grew faster than COGS (+7.4% y/y). The expansion in gross profit margin reflects the impacts of price increases implemented in the period amid the pass-through impact of elevated inflationary pressures on raw material and freight costs. Consequently, the brewer’s gross profit increased by 19.7% y/y to NGN18.24 billion. However, EBIT and EBITDA margins declined by 253bps and 267bps to 11.2% and 15.4%, respectively due to the growth in OPEX (+44.7% y/y), as marketing expenses and distribution expenses increased by 48.3% y/y and 37.8% y/y, respectively.
Elsewhere, net finance cost surged by 232.8% y/y to NGN1.86 billion in the quarter, as a 130.8% y/y increase in finance cost outweighed an 18.0% y/y rise in finance income. On the higher finance costs, we cite an increase in interest expense on loans and borrowings (+484.1% y/y) and foreign exchange loss (+41.3% y/y).
Overall, profit before tax and profit after tax for the quarter declined by 32.0% y/y apiece to NGN4.04 billion and NGN2.75 billion, respectively. The tax expense in the period was NGN1.29 billion (-32.0% y/y).
Comment: The brewer’s Q1-23 result is reflective of the high cost of operation given the weak operating environment and the impact of elevated inflation and currency weakness in the period. Notwithstanding the pressures on margins, we expect earnings in subsequent quarters to be supported by a favourable price-volume mix. Our estimates are under review.
