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Home ECONOMY

Nestle’s profit declines to N16 billion as financing costs rise

by Tosan Olajide
May 4, 2023
in ECONOMY
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Nestle's profit declines to N16 billion as financing costs rise

Nestle's profit declines to N16 billion as financing costs rise

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News highlights:

  • Nestle Nigeria experienced a 10% decline in Q1 profit after tax to N16.21 billion due to increased operating and financing costs.
  • Despite a 16% revenue increase to N127.97 billion, costs of sales grew in line with inflation and local currency pressures.
  • The company’s EBITDA margin also decreased from 26% to 24.5% in Q1 2023.

Nestle Nigeria reported a 10% decline in profit after tax to N16.21 billion in its first quarter unaudited results due to higher operating and financing costs.

The company’s operating costs increased by 36.6 percent during the course of the year, while finance costs increased by 125 percent.

The consumer products company’s financial costs climbed from N2.37 billion to N5.34 billion in the first three months of 2023, while operating expenses increased from N16.84 billion to N23 billion.

Operating expenses increased as a result of a 36 percent increase in marketing and distribution expenses and a 39.7 percent increase in administrative expenses over the period.

Nestle Nigeria’s administrative costs increased by 39.7% to N3.66 billion in the first three months of 2023 from N2.62 billion in the corresponding 2022 period.

From N14.22 billion in the corresponding period, marketing and distribution costs rose to N19.34 billion, a 36 percent rise.

However, Nestle Nigeria’s revenue increased by 16 percent, from N110.23 billion in the first three months of 2022 to N127.97 billion in the first three months of 2023.

While export revenue decreased to N256.61 million from N2.03 billion, revenue from Nigeria increased to N127.71 billion, up 18% from N108.2 billion in the comparable periods.

The food segment saw a 20.5 percent gain year over year and contributed 63.4 percent of the N127.97 billion in total revenue.

The beverage segment saw 6.1 percent growth during the first three months of 2023 and contributed 36.6 percent of the N127.97 billion in total revenue.

“Despite the company’s ability to source 80 percent of its raw materials locally, the cost of sales (adjusted for depreciation) yielded to inflation and local FX pressures as it grew in line with revenue, up 16.1 percent y/y to N74.41 billion (Q1 2023) from N65.42 billion (Q1 2022),” Goke Adetoyinbo, analyst at CSL Research, wrote in a note.

In the first three months of 2022, the cost of sales grew to N76.32 billion, up 14% from N66.98 billion in the same period the year before.

The management continued its product developments and marketing initiatives after launching Nescafe Malty in 2022, a combination of Nescafe 3-in-1 and malt, according to analysts at CSL Research.

As a result, the EBITDA margin decreased from 26 percent in Q1 2022 to 24.5 percent in Q1 2023.

From N2.24 billion in the first quarter of Q1 2022 to N2.72 billion in the first quarter of 2023, depreciation and amortisation increased by 21.5 percent annually.

According to CSL Research, Earnings Before Interest and Tax (EBIT) increased by 8.5 percent year over year to N28.65 billion (Q1 2023) from N26.40 billion (Q1 2022) in the absence of other income.

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