….Grows Operating Expenses By 21.1%
Guinness Nigeria Plc has posted an underwhelming earnings performance in the third quarter of 2023, according to its unaudited financial statement posted on the Nigerian Exchange.
In the unaudited financial results, the company recorded a 71.5% year-on-year decline in Q1-2023 and reported that its earnings per share (EPS) slumped to N0.84 from N2.95 in the comparable period in 2022.
Thus, its 9-month result showed that EPS settled at N2.68 versus N6.98 in the comparable period in 2022. The sharp decline in EPS was driven by a weaker gross margin, higher operating expenses and net finance cost, Cordros Capital analysts said in its review.
GUINNESS reported revenue growth of 7.4% year on year in Q3-2023, driven by price and mix optimization across its strategic focus brands, Guinness, Ready-to-Serve, and Spirits supported revenue growth.
In addition, resilient consumer demand and improved outlet coverage, as the brewer continues to optimize its route to consumers, remained supportive of topline expansion.
The brewer experienced a steep contraction in gross profit margin in the period, down by 759 basis points year on year to 33.5% in Q3-2023 from 41.1% in the comparable period in 2022; reflecting the faster increase in cost of sales relative to revenue growth.
Its results show that costs of sales were up +21.2% year on year while its revenue grew by 7.4%. Analysts at Cordros Capital said they believe the cost pressures in the period stemmed from higher input prices amid the high inflationary environment.
Amidst rising inflation rate, Guinness Nigeria’s operating expenses remained elevated, growing by 21.1% in Q3-2023, indicative of increased marketing investments to support its strategic growth priorities and target market share improvement.
In 9-month financial scorecard for 2023, the brewer said operating expenses were up 24.7% above the record level seen in the equivalent period in 2022.
Eventually, earnings before interest and tax (EBIT) and earnings before interest tax depreciation and amortization (EBITDA) margins printed lower at 9.0% and 13.5% respectively.
This means that its EBIT margin dropped by 944 basis points while its EBITDA margin declined by 915 basis points below the comparable period in 2022.
Further down, a net finance cost of N2.17 billion was recorded in the third quarter compared with a net finance income of N202.82 million in Q3-2022.
Guinness Nigeria’s higher net finance costs trend was fuelled by a 984.4% year-on-year surge in finance costs and a 9.7% decline in finance income.
“We highlight that the exchange difference on the letter of credits and a higher loss on re-measurement of foreign currency balances drove the elevated finance costs.
Its result showed that the exchange rate difference on letters of credit increased strongly, rising by 608.8% to N2.12 billion in the third quarter of 2023. And, due to re-measurement of its FX balances, its losses grew by 716.3% to N3.19 billion.
Analysts at Cordros Capital stated that on finance income, there was a 13.4% reduction in short-term deposits in the period. The company many downside risks dragged the bottom line to the bottom. Profit before tax settled lower at N2.71 billion, representing a 71.5% year-on-year decline from N9.50 billion a year ago.
At the end of the period, Guinness Nigeria goes home with an underwhelming earnings performance which breaks the company’s expectations.
Its unaudited financial statement showed that the brewer posted a profit after tax of N1.84 billion, a massive load down from N6.46 billion in Q3-2022 following an income tax expense of N866.42 million.
