Nestle Nigeria suffers decline in profit, amid hike in finance cost, others
By Philemon Adedeji
Nestle Nigeria Plc, a publicly listed food and beverage specialty company quoted on the Nigerian Exchange Limited (NGX), in its unaudited financial statements for the period ended March 31st, 2023, reported decline in both both top-line and bottom-line segment.
In its unaudited results, the food processing company suffered a 9.86 per cent quarter-on-quarter decline in profit after tax, amounting to N16.209 billion in first quarter (Q1) of 2023 from N17.980 billion generated as of end of 31, March 2022.
The decline in profit is attributed to high finance costs, especially interest expenses on intercompany and bank loans.
From the profit and loss figures, the group Profit Before Tax (PBT) declined by 10.6 per cent to N24.9 billion in Q1 2023 from N27.9 billion generated in Q1 2022.
The company witnessed a 125.80 per cent surge in finance cost to N5.344 billion in Q1 2023 from N2.366 billion in Q1 2022 and according to notes to the financials, included in the finance cost is the interest expense on intercompany loans amounting to approximately N5.52 billion in Q1 2023 from N1.84 billion in 2022.
The company received about N8 billion in intercompany loans and added about N9.8 billion in bank loans pushing the loan book up by about N17.8 billion to N152.58 billion.
Total reported sales increased by 5.6 per cent to CHF 23.5 billion (3M-2022: CHF 22.2 billion). Foreign exchange decreased sales by 4.0 per cent . Net acquisitions had a positive impact of 0.3 per cent.
Organic growth reached 9.3 per cent, with broad-based contributions across geographies and categories. Pricing was 9.8 per cent, reflecting significant cost inflation. Real internal growth (RIG) was -0.5 per cent
Equally, the company is a dividend-paying company. The company intends to pay an N36.50 dividend per share on May 18th, 2023, for the 2022 FY. This is in addition to the interim dividend of N25 per share paid on December 5, 2022.
The company’s operating profit was boosted by a 16 per cent increase in its top-line revenues of N127.970 billion, the highest over the past five quarters.
The revenues were boosted by a rise in sales from its Food Strategic Business, which includes the production and sale of Maggi, Cerelac, Nan, Lactogen and Golden Morn.
Revenues from this segment went from N66.135 billion to N81.176 billion as a combination of better distribution, price adjustments, and improved product positioning helped boost sales.
The interplay between revenue and Cost of sale lifted gross profit to N51.7 billion in Q1 2023 from N43.2 billion in Q1 2022, indicating an improvement of 19.5 per cent quarter-on-quarter.
Administrative expenses rose by 40.7 per cent to N3.664 billion in three months of 2023 from N2. 615 billion reported in the prior year 2022
Property, plant and equipment gained nearly 2.0 per cent to N119 billion in three months of 2023 from N116.7 billion as of end of March 31, 2022
Also, marketing and distribution expenses increased further by 36 per cent from N14.2 billion in Q1 2022 to N19.3 billion in Q1 2023.
The company also reported improved sales from its beverages SBU, which includes the production and sale of Milo, Chocomilo, Nescafe, Milo ready-to-drink (RTD) and Nestlé Pure Life.
The SBU saw revenues jump to N46.794 billion from N44.090 billion same period in 2022.
Despite the revenue growth, the company faced a rise in operating expenses as rising inflation, exchange rate and the new naira note swap policy exacerbated cost
During the period under review the group Earnings Per Share (EPS) declined by 9.8 per cent to N20.45 in Q1 2023 from N22.68 in Q1 2022
Weak Balance Sheet Position
In the unaudited financial results ended March 31, 2023, the group balance sheet not well structure as the total assets recorded for the period declined a bit by 0.3 per cent from N415 billion achieved in FY 2022 to N413.9 billion achieved in Q1 2023, also total current assets decreased from N290.5 billion as of end of December 31, 2022 to N286.9 billion as of end of March 31, 2023, while total non-current assets increased from N124.5 billion in twelve months of 2022 to N127 billion in three months of 2023
The group total liabilities decreased by 4.5 per cent to N367.5 billion in first three months of 2023 from N384.8 billion accounted as of end of December 31, 2022, as total non-current liabilities gained 7.4 per cent to N178.6 billion in Q1 2023 from N166.4 billion generated as of end of December 31, 2033 while total current liabilities decreased by 13.5 per cent to N188.9 billion in first three months of 2023 from N218.4 billion in FY 2022
In addition, the group shareholders fund increased remarkably by 53.3 per cent to N46.4 billion as of end of March 31, 2023 from N30.3 billion in FY 2022.
The Vice Chairman of HighCap Securities Limited, David Andori said, “Just like many other companies in the real sector, Nestle’s top line performance in Q1 is outstanding but the bottom line diminished due to high finance cost cause by contractionary monetary policy. Increase in total equity by 53 per cent is high indicating that beyond retained earnings, more equity may have come from other sources.”
The management of Nestle Nigeria commented on the results that, “Our results for Q1 2023 are a continued testament to our resilience within the current challenging business environment. We will continue to work to create value for our investors and other stakeholders by ensuring the availability of affordable nutrition for the individuals and families who depend on us to nurish their families daily, while we remain focused on building resilient communities and protecting our environment.”
Nestle Nigeria’s 2023 Outlooks
“We expect organic sales growth between 6.0 per cent and 8.0 per cent and underlying trading operating profit margin between 17.0 per cent and 17.5 per cent Underlying earnings per share in constant currency is expected to increase between 6.0 per cent and 10.0 per cent.
The Chief Executive Officer (CEO) of Nestle, Mark Schneider, commented: “Nestlé delivered strong organic growth in the first quarter, as our teams worked diligently to protect volume and ensure resilient mix. Portfolio optimization efforts and responsible pricing helped to offset the ongoing pressures from two years of cost inflation.
“We continued our portfolio management journey with the creation of a joint venture dedicated to the frozen pizza business in Europe. The new partnership provides the best platform to develop the full potential of this business.
“Following a strong start to the year, we confirm our full-year 2023 outlook and remain focused on creating value for all stakeholders.”
About Nestle
Nestle Nigeria Plc is a food manufacturing and marketing company in Nigeria and a subsidiary of the largest food and beverage company in the world.
The company produces an extensive range of products for the retail and wholesale sectors. Famous brands in the food category include Maggi, Golden Morn, Nan, Lactogen, Nutrend and Cerelac. Brands in the beverages segment include Milo, Chocomilo, Nescafe, Nestle Pure Life and Nido.
The company has an infants’ range which includes an infant formula, Nestle Nan; and infant cereals which includes Nestle Nutrend, Nestle Cerelac and Nestle Golden Morn.
Nestle Nigeria also produce and market a brand of still water called Pure Life. The company’s head office is in Lagos, Nigeria.
