Guinness Nigeria Plc in its Q1 2020 financial report announced a 4.3% y/y decline in revenue to N26.9 billion in Q1 2020 from N28.1 billion in Q1 2019. On a q/q basis, Revenue dipped 10.6% due to seasonal impacts of weather and fewer number of festivities between July and September.

Reported Q1 2020 revenue was in line with our projection for the quarter. The y/y decline in revenue evidence sustained pressure on the company’s beer business as spirits continue to strengthen.

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Cost of Sales maintained a downward trend within the quarter albeit marginally which we believe was down to lower volumes sold. Cost of Sales adjusted for depreciation declined 0.5% y/y to N17.1 billion in Q1 2020 from N17.2bn in Q1 2020 while dipping 12.8% q/q.

In FY 2019, we expressed concerns on production cost pressures faced by Guinness, Q1 2020 performance continues to strengthen our fears as actual cost of sales per unit sold is growing, albeit slowly. We believe elevated barley prices, a key input for Guinness must have impacted costs. Against this backdrop, Gross Profit dipped 10.1% y/y to N9.8 billion in Q1 2020 from N10.9 billion in Q1 2019.

We observed improved cost efficiency as Operating Expenses (adjusted for depreciation) declined, down 3.9% y/y to N6.7 billion in Q1 2020 from N6.9 billion in Q1 2019. The lower Operating Expenses was on the back of lower Marketing & Distribution Expenses (down 5.3% y/y to N4.7 billion) and Administrative Expenses (down 0.3% y/y to N2.0 billion).

Despite lower operating costs, EBITDA slipped lower by 21.7% y/y to N3.3 billion in Q1 2020 from N4.2 billion in Q1 2019 driven by weaker Revenue and pressured margins. Depreciation & Amortisation climbed higher by a modest 2.7% but an overall weakness in operating performance saw EBIT plunge 59.0% y/y to N681.6m in Q1 2020 from N1.7 billion in Q1 2019.

Surprisingly, the company took on more debt in Q1 as total debt stood at N27.1 billion, a 36.2% increase from the end of FY 2019. The company took a short-term loan and additional Letters of credit loans which we expect the company to pay-off soon, thus not signifying long term leverage strategy.

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However, the higher debt book led to a 143.8% spike in Net Finance Expense within the quarter to N1.1 billion from N0.4 billion in Q1 2019. Against the backdrop of overall poor performance, Guinness reported a loss of N370.4m in Q1 2020 compared to an N835.7 million profit in Q1 2019.

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CSL STOCKBROKERS LIMITED CSL Stockbrokers,

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PO Box 9117,

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NIGERIA.

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