FSDH Initial Reaction: Nestle Nigeria 2Q22 results 
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August 2, 2022/FSDH Research

Key Performance Highlights:

• Nestle Nigeria reported strong revenue growth of 33.3% YoY to N112.2 billion in 2Q22. A strong showing across both segments drove the performance. The revenue growth was primarily driven by a 35.9% YoY spurt in the food segment (59.1% of 2Q22 revenue) to N66.3 billion, supported by a 29.7% YoY jump in the Beverage segment (40.9% of 2Q22 revenue) that recorded N45.9 billion in 2Q22. On the geographic front, the revenue growth was driven by a 34.2% YoY increase in domestic revenue to N111.9 billion, while the exports declined by 61.9% YoY to N289 million in 2Q22. The company’s cost of sales jumped more than revenues at 43.4% YoY to N75.3 billion in 2Q22 from N52.5 billion in 2Q21, resulting in a 471 bps gross margin contraction to 32.9% in 2Q22 compared to 37.6% in 1Q22. The net profit climbed 4.7% YoY to N9.8 billion in 2Q22. Even though there is a strong 33.3% YoY growth in revenue, the 43.4% increase in the cost of sales and a significant increase in the finance costs led to the deterioration of the net profit margin by 238 bps to 8.7% in 2Q22 versus 11.1% in 2Q21.
   
• The company’s marketing and distribution expenses spurted 14.1% YoY to N14.1 billion in 2Q22, while the administrative expenses declined by 7.2% YoY to N3.1 billion in 2Q22. The operating income vaulted 23.5% YoY to N19.8 billion versus N16.0 billion in 2Q21. The finance income spurted 119.5% YoY to N705 million, offset by a 134.6% YoY jump in finance costs. The increase in finance income was primarily due to a 77.7% YoY jump in interest income on bank deposits to N626 million in 2Q22, while the increase in finance cost was attributable to a net foreign exchange loss of N2.1 billion in 2Q22. The company also charged a higher effective tax rate of 38.5% in the quarter versus 35.1% in the previous period. Consequently, net profit edged 4.7% higher to N9.8 billion in 2Q22. The company’s earnings per share stood at N12.33 per share in 2Q22 against N11.77 per share in 2Q21.
   
• The company’s gross margin declined 471 bps YoY to 32.9% in 2Q22, as the cost of sales rose higher than revenues. The operating and EBITDA margins contracted by 140 bps and 178 bps, respectively. The net profit margin reduced by 238 bps to 8.7% in 2Q22, owing to higher finance costs. The Food segment recorded a 34.5% YoY growth in operating profit to N12.6 billion in 2Q22, while the Beverage segment’s operating profit rose by 8.0% YoY to N7.2 billion in 2Q22.
   
• On a sequential basis, the revenue in 2Q22 remained steady, rising 1.8% QoQ to N112.2 billion. However, the cost of sales grew 12.4% QoQ to N75.3 billion in 2Q22. The company reported a 16.8% QoQ jump in administrative expenses. An 81.5% QoQ decline in the finance income to N705 million, coupled with a 94.2% QoQ rise in the finance cost to N4.6 billion in 2Q22, resulted in a 45.7% QoQ decline in the net profit to N9.8 billion in 2Q22. Consequently, all the margins contracted significantly on a QoQ basis.
   
• Furthermore, earlier this month, at the AGM, Nestle Nigeria Plc declared a dividend of N25.50 per share for the financial year, which ended on December 31, 2021, and is to be paid on June 30, 2022. The company had earlier paid its shareholders an interim dividend of N25.00 per share, making a total dividend of N50.50 per share for 2021, a decline from the N60.50 dividend paid in 2020.

Market Reaction: Investor reaction to the 2Q22 results was restrained as the stock closed flat at N1,262.30 versus a 1.42% gain in the All-Share Index on Friday (29/7).  Moreover, the stock closed unchanged at N1,262.30 on Monday (1/8) versus a 0.83% fall in the All-Share Index. 

Nestle Nigeria Earnings Highlight 2Q22

Source: Company Financials, FSDH