FREE

GUINNESS NIGERIA PLC H1'24 EARNINGS - Navigating growth amidst cost challenges

Revenue growth and cost pressures
In Q2'24, Guinness sustained its impressive revenue growth, with a 27% increase year-on-year, reaching ₦83.1 billion. This pushed up H1’24 topline to ₦142.6 billion, a 20% increase y/y. Half-year revenue growth was driven by a change in product mix amidst significant price increases. All product segments noted growth as follows: Malts – 41%, Ready-to-drink beverages – 29%, Premium spirits – 19%, Mainstream spirits – 11%, and Brand Guinness – 7%. Nonetheless, significant volume declines were witnessed to an average of 15%, majorly driven by fall in volumes of malts and beers while mainstream spirit was the most resilient category. 

FX losses impact bottom-line
FX losses took center stage in Q2'24, significantly impacting the financials. The heavy losses incurred in Q2’24 totaled ₦14.4 billion, marking an 8.6x jump from Q2’23. This led to a significant jump in finance costs for H1’24, bringing it to ₦23.9 billion, a 3.5x increase y/y. All in, a loss before taxation (PBT) of ₦8.3 billion was recorded in Q2. Following tax provisions, the loss after tax was ₦8.7 billion (Q2’23: ₦1.3 billion profit).

Earnings outlook
First, we acknowledge that management’s plan to double down on mainstream spirits segment and exit the imported premium spirits sub-segment are net positives. Second, we note that GUINNESS’ efforts at reducing import of inputs by stepping up local sourcing will reduce FX demand. However, we note that leaving payables balances pending till dollars can be officially sourced will aggravate balance sheet risks. Given the above, we have adjusted our FY’24 revenue and PAT expectations to ₦273 billion and ₦13.3 billion loss respectively. Consequently, we revise our TP projection for GUINNESS lower to ₦67.21.