Culled—Proshare
August 3, 2020
By CardinalStone Research
Nestle Nigeria Plc (NESTLE: TP – N1,455.22: BUY) result highlights: 
- H1’20 earnings declined by 16.8% YoY on weaker top line growth (-0.6% YoY) and higher production cost pressure (cost to sales: 56.9% vs 53.4% in H1’19)
- Q2’20 earnings wakened by 20.7% YoY following a 14.3% YoY increase in production cost
- Top line was relatively flat in Q2’20 (-0.3% YoY) as a 4.1% YoY growth in food products was offset by a 7.1% decline in beverage products. In our view, stay at home measures may have increased reliance on home-prepared meals and supported the demand for Maggi. Conversely, the shutdown of event and recreational centres as well as restrictions on large scale gatherings and social events may have hurt the sales of key beverage products like Nestle Pure Life (water)
- Operating expenses slowed during the quarter (-6.6% YoY), impacted by an 18.5% contraction in marketing investments (12.6% of sales vs 15.4% in Q2’19) which subdued the 48.6% YoY rise in Admin related costs
- PNet finance costs rose to N383 million during the quarter (Q2’19: N3 million) likely related to the N5.8 billion in inter-company loan obtained in Q2’20, possibly to address working capital needs. Recall that in Q1’20, NESTLE paid down N10.3 billion in outstanding borrowings (inter-company: N5.5 billion; bank loans: N4.8 billion)
