Guinness Nigeria records 54% decline in profit, amid weak performance
By Philemon Adedeji
Amid macroe conomics headwinds, Guinness Nigeria plc, a listed company on the Nigerian Exchange Limited (NGX), known as a subsidiary of Diageo Plc, in its unaudited financial results ended December 31st, 2022 shows week performance in most of its major parameters.
Guinness Nigeria reported a 54.52 per cent decline in profit to N4.02 billion in full year 2022 from N8.82 billion accounted in the comparable period.
The drop in Profit was caused by slowdown in profits that increase the cost of sales as well as indirect expenses for the period.
Guinness Nigeria profit before tax (PBT) stood at N7.23 billion as of end of December 2022, in contrast from N12.97 million recorded during the corresponding period of 2021, representing a decline of 44.2 per cent.
The group revenue grew by 8.55 per cent year-on-year y/y to N118.45 billion in H1-2023 from N109.12 billion in H1 2022, the growth in revenue was 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 per cent (Q1-23: +11.6 per cent q/q), highlighting the festive-induced demand in the period.
According to the financial statement of the company, the disaggregation of revenue from contracts with customers from Nigeria and export is valued at N117.25 billion and N1.20 billion respectively from N108.04 billion and N1.09 billion.
The results statement noted that gross profit grew nearly 16 per cent from N36.51 billion in H1-2022 to N42.29 billion accounted in H1-2023, as revenues grew by 8.55 per cent ahead of the 5 per cent increase in cost of sales, driven by inflation and the impact of Naira devaluation on imported materials in the half- year under review.
Gross profit margin increased by 216 basis points y/y to 36.7 per cent in Q2-23, as revenue growth offset the increase in COGS by 2.9 per cent year -on-year y/y).
The cost pressures in the period came from higher excise duty expenses (Beer & stouts:+14.3 per cent to N40.00/cl; Spirits: 45.0 per cent to N290.00/cl; Non-alcoholic drinks: N10.00/l), amid the high inflationary environment.
The interplay between revenue and cost of sales lifted gross profit to N42.29 billion in H1-2023, reflecting an increase of 15.8 per cent from N36.51 billion reported in H1-2022.
The growth in revenue and gross profit contributed to 35.7 per cent gross margin in H1-2023 from 33.5 per cent in H1-2022.
As regarding to Operating Expenses (OPEX), Guinness Nigeria reported an increase of 26.4 per cent to N30.70 billion in H1-2023 from24.29 billion in H1-2022, reflecting increased marketing and distribution efforts towards the brewer’s strategic focus brands and categories.
However, other income declined by 73.9 per cent y/y, resulting in Earnings Before Income Tax (EBIT) and Earnings Before Income Tax Depreciation and Ammortisation (EBITDA) margins of 10.1 per cent (-136 basis points) and 13.7 per cent (-142 basis points), respectively.
Elsewhere, a net finance cost of N3.45 billion was recorded in Q2-2023 (Q2-2022: N60.08 million), comprising finance costs of N4.25 billion (Q2-2022: N186.76 million) and finance income of N800.72 million (Q2-2022: N126.68 million).
The surge in loss on re-measurement of foreign currency balances (H1-2023: N2.77 billion against N248.99 million in H1-2022), exchange differences on letters of credit gained 367.9 per cent and foreign currency loans gained a 433.0 per cent underpinned the higher finance costs.
Earnings Per Share (EPS) recorded for the period dropped by 54.34 per cent from N403 in financial year 2021 to N184 in financial year 2022.
The negative surprise in EPS was due to higher operating costs which increased by 15.6 per cent y/y and a spike in finance costs (Q2-2023: N4.25 billion | Q2-2022: N186.76 million).
Profitability Ratio
Earnings Before Income Tax Depreciation and Ammortisation (EBITDA) margin dropped from 16.4 per cent in H1-2022 to 14.5 per cent in H1-2023 as Profit Before Tax margin declined from 11.9 per cent in H1-2022 to 6.1 per cent in H1-2023, while Profit After Tax depreciated from 8.1 per cent in H1-2022 to 3.4 per cent in H1-2023.
According to Analyst at cordros research, “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.”
Speaking on the announcement, Mr. Managing Director/CEO, Guinness Nigeria Plc, John Musunga, said, “In the half year ended 31st December 2022, Guinness Nigeria delivered results that reflected the continued regulatory, competitive and inflationary challenges in the operating environment in Nigeria.
“The period was characterised by challenges such as escalating inflation, dwindling consumer disposable income and a worsening foreign exchange situation. Despite these challenges, the business recorded good progress against our strategic focus brands.
“Despite lapping a strong quarter in 2021, revenue grew by 9 per cent, benefiting from price and mix optimisation, as well as reflecting resilient consumer demand and improved outlet coverage as we continue to optimise our route to consumer.
“Revenue grew across most categories, driven by our strategic focus brands, Guinness, Ready-to-Serve and Spirits. Malta Guinness was flat on previous year due to the impact of increased pricing in response to the higher inflationary pressure on packaging costs,” he said.
Expatiating, he said, “Marketing expenses increased 7 per cent, as we increased marketing investment to support our strategic growth priorities and target market share improvement.
Distribution expenses increased 28 per cent, driven by increase in the price of diesel, other haulage inputs and asset replacement cost. Despite all the above, the company delivered N12.6 billion operating profit.”
Musunga noted that the continued devaluation of the Naira resulted in a 758 per cent increase in net financing costs, due to the revaluation of the hard currency debt.
However, finance income increased by 121 per cent on account of higher yields from short-term cash investments. Lower corporate tax is driven by the reduction in pre-tax profits.
“Looking forward, we will continue to drive our strategy which has deliberate focus on key categories, exploding Guinness growth, growing spirits faster, continuing to innovate to meet consumer needs, and driving productivity.
“Whilst we are conscious of the continued challenging operating environment with double digit inflation, and pressured consumer spending, we are positive about the execution of our strategy for the remainder of the 2023 financial year.
“We remain confident of the resilience of our total beverage alcohol portfolio strategy as a key driver of sustainable growth in the market,”he added.
On her part, Chair of the Board of Guinness Nigeria Plc,Dr Omobola Johnson, said, “The Board is confident that our strategy is sound, and will in the long term continue to drive value to all stakeholders.”
