Event

In Q1 2024, Guinness Nigeria (‘the Company’) experienced a decline in profit, due to macroeconomic headwinds which includes escalating inflationary pressures impacting consumers purchasing power, as well as input and operational costs, coupled with the volatility of the Naira and the high-interest rate environment.

Guinness Nigeria revenue notched a 13% growth to N59.54 billion from N52.85 billion in Q1 2023, propelled by pricing strategy measures taken.

However, this revenue growth fell short of offsetting the escalating cost of sales, which surged by 20% to N41.40 billion from N34.61 billion in Q1 2023 due to mounting inflationary pressures.

Effective Cost Containment Boosts Operating Profit

Operating expense declined by 10%, settling at N11.66 billion from N13.00 billion in Q1 2023. This decline stemmed primarily from the reduction of administrative cost by 7%, and marketing and distribution cost by 12%. Management ascribed the moderation in marketing and distribution cost to the optimisation of the Company’s route-to-consumer strategy. As a result of effective operating cost management, operating profit spiked by 33% to N7.87 billion from N5.91 billion in Q1 2023.

Despite the commendable operating profit, the heightened FX loss and net finance cost had an adverse impact, leading to a 6% decline in profit after tax, which settled at N2.60 billion in Q1 2024 from N2.75 billion in Q1 2023.

Outlook

Given the impact of unabating inflationary pressure on input cost, we anticipate the Company will persist in passing on cost burden to consumer, despite potential negative impact on volumes.

A recent development with the Company is its announcement that with effect from April 2024 – the fourth quarter of 2024 fiscal year, it will no longer import or distribute certain Diageo international premium spirits products, including Johnnie Walker, Singleton, and Baileys and others.

This decision bears the capacity to impact the Company’s revenue, given that Diageo International Premium Spirits products constituted 6% of the total revenue for the 2023 fiscal year. Anticipating this, we expect the Company to focus on its core strength, increase market penetration for its brands – locally produced spirits, ready-to-drink, beers, & non-alcoholic drinks, and also improve production capacity to meet potential increase in demand.

Also, with the prevailing FX volatility, this strategic decision will help reduce its FX obligations which has posed a challenge to its profitability due to the instability of the exchange rate.

We anticipate the Company returning to profitability by FY 2024, rebounding from the net loss position in FY 2023. This expectation is based on sustained operating cost containment, and higher pricing. Overall, we estimate a fair value of N68.17 and we maintain our HOLD recommendation for the stock, as the Company remains positioned for growth. 

Please follow the link “Guinness Nigeria Plc Q1 2024 – Bottomline Pressured Despite Cost Optimisation” to view the whole report.

Thank you.