Q3 2022: Nestle Nigeria records 4.62% growth in PAT to N12.4bn
By Philemon Adedeji
Nestle Nigeria Plc has released its unaudited results for the period ended September 30, 2022, reporting 4.62 per cent increase in profit to N12.4 billion in nine months of 2022, from N11.8billion in the corresponding period.
The result is on the back of an inflationary year occasioned by supply chain disruptions and rising energy costs, where companies have had to deal with increased production, marketing and distribution expenses.
From the data submitted to the Nigerian Exchange Limited (NGX), Profit Before Tax declined by 19.55 per cent Year- on-Year to N14.646 billion in Q3-22 from N18.2 billion reported in the same period of 2021. However, a lower effective tax of 15.33 per cent in Q3-22 compared to 34.89 per cent in Q3-21 led to the 4.62 per cent year-on-year growth in Profit After Tax to N12.4 billion from N11.853 billion recorded in Q3-21.
A review of the financial statements showed that Q3-22 revenue grew by 23.15 per cent to N111.021billion compared to N90.151 billion in Q3-21.
The result also showed that the revenue growth was due to substantial growth across the food and beverages business segments. We believe price increases across the company’s product portfolio in Nigeria drove the growth in these segments. Nigeria still accounts for about 99 per cent of the company’s revenue base, with a paltry 1 per cent coming from its export market.
This shrank by 13.63 per cent Year-on-Year to 33.40 per cent in Q3-22 following faster growth in the cost of sales (+33.72 per cent y/y) relative to revenue (+23.15 per cent y/y).
The effects of inflation: The higher cost is reflective of the impacts of inflationary burdens. Consequently, operating margins declined to 16.84 per cent from 21.96 per cent with further pressures coming from marketing and distribution expenses (+23.96 y/y) and admin expenses (+14.11 per cent y/y).
Another cost pressure came from net finance cost: Further review of the results showed that NESTLE’s net finance cost grew by 155.2 per cent Year-on-Year in Q3-22.
The increase in the net finance cost was due to a 388.05 per cent y/y decline in finance income, despite a 9.96 per cent y/y decline in finance cost.
As of nine months of 2022, interest expense on financial liabilities and net foreign exchange loss increased to N7.377 billion (9M-21: N5.72 billion) and N1.693 billion (9M-21: N562.840 million), respectively.
The cost of sales rose significantly to N73.941 billion in Q3-22 from N55.294 billion recorded a year earlier.
Gross profit printed at N37.080 billion compared to N34.857 billion recorded in Q3-21.
Marketing and distribution expenses stood at N15.028 billion in Q3 2022 compared to N12.123 billion in Q3 2021.
Administrative Expenses moved up to N3.357 billion from N2.942 billion recorded in Q3-22.
Operating profit dipped by 5.54 per cent to N18.696 billion in nine months of 2022 from N19.793 billion recorded in nine months of 2021.
Overall basic earnings per share recorded for the period grew by 4.68 per cent to N15.65 Q3 2022 from N14.95 in Q3 2021.
Nestle S.A. Switzerland owns about 66.18 per cent or 524,559,457 shares of Nestle Nigeria. Nestle Nigeria conducts business with its related parties. For instance, the Company procures all its raw materials on a commercial basis from overseas and local suppliers. Amongst the overseas suppliers are companies in the Nestle Group. Also, the company received about N24.457 in intercompany loans.
NESTLE generated an N5.565 billion net cash flow from operating activities in addition to the N100.518 billion it opened the year with.
It received intercompany and bank loans of N63.236 billion and repaid N35.20 billion to the banks. It went further and spent N14.064 billion to acquire property, plant and equipment and right-of-use assets.
The company closed the quarter with a cash balance of N107.136 billion, which is significantly higher than its equity of N41.272 billion.
NESTLE’s share price has been less volatile than 75 per cent of NGX stocks over the past 3 months, typically moving +/- 3 per cent a week. It closed its last trading day (Wednesday, November 2, 2022) at N1, 215 per share on the NGX, having started the year with a share price of N1,556.50.
This shows that the stock has since lost 21.9 per cent off that price valuation, ranking it 133rd on the NGX in terms of year-to-date valuation.
However, investors should be optimistic going by its current outstanding return on equity at 112.92 per cent, though skewed to its high debt-debt/equity ratio of 254.2 per cent.
Although Nestlé’s revenue and profit sustained positive growth; the company’s performance in Q3-22 reflects our concerns about the weakening margins, driven by higher expenses, given the current inflationary pressure.
For the rest of the year, we expect resilient revenue/earnings growth driven by NESTLE’s brand equity and production process innovation. The company’s successful introduction of the use of local raw materials such as soya bean, maize, cocoa, palm olein and sorghum, in its production processes, if sustained, would help reduce the high cost of imported raw materials and consequently improve ear.
