GUINNESS Nigeria Plc published its Q2-23 (H1-23) unaudited results Thursday, January 26, 2023, reporting a 73.3% y/y decline in Q2-23 standalone EPS to NGN0.58 (Q2-22: NGN2.18). Thus, H1-23 EPS settled lower at NGN1.84 (H1-22: NGN4.03). The negative surprise in EPS was due to higher operating costs (+15.6% y/y) and a spike in finance costs (Q2-23: NGN4.25 billion | Q2-22: NGN186.76 million).
Revenue grew by 6.4% y/y in Q2-23 (H1-23: +8.5% y/y), supported by a sustained increase in product prices amid an organic volume decline. On a quarter-on-quarter basis, revenue grew markedly by 24.1% (Q1-23: +11.6% q/q), highlighting the festive-induced demand in the period.
Gross profit margin increased by 216bps y/y to 36.7% in Q2-23, as revenue growth offset the increase in COGS (+2.9% y/y). The cost pressures in the period came from higher excise duty expenses (Beer & stouts:+14.3% to NGN40.00/cl; Spirits:+45.0% to NGN290.00/cl; Non-alcoholic drinks: NGN10.00/l), amid the high inflationary environment.
OPEX increased by 15.6% y/y in Q2-23 (H1-23: +26.4% y/y), reflecting increased marketing and distribution efforts towards the brewer’s strategic focus brands and categories. However, Other income declined by 73.9% y/y, resulting in EBIT and EBITDA margins of 10.1% (-136bps) and 13.7% (-142bps), respectively.
Elsewhere, a net finance cost of NGN3.45 billion was recorded in Q2-23 (Q2-22: NGN60.08 million), comprising finance costs of NGN4.25 billion (Q2-22: NGN186.76 million) and finance income of NGN800.72 million (Q2-22: NGN126.68 million). The surge in loss on re-measurement of foreign currency balances (H1-23: NGN2.77 billion vs NGN248.99 million in H1-22), exchange differences on letters of credit (+367.9%), and foreign currency loans (+433.0%) underpinned the higher finance costs.
Compared to Q2-22, PBT was down by 54.6% y/y to NGN3.19 billion (H1-23: – 44.2% y/y). A tax expense of NGN1.92 billion resulted in a 73.3% y/y decline in PAT to NGN1.28 billion in the period (Q2-22: NGN4.78 billion).
Cordros Analysis: GUINNESS’ Q2-23 underperformed our expectations, with the variance stemming from the higher finance costs recorded. Nevertheless, we look forward to a gradual recovery in earnings in the subsequent quarters as we believe the brewer remains well-positioned to maintain decent top-line growth. However, we expect results to continue to reflect the challenging operating conditions as pressured consumer wallet continues to weigh on sales, while weaker exchange rates, poor FX liquidity, and high inflation continue to impact costs. Our estimates are under review
