FSDH Initial Reaction: Nestle Nigeria 3Q22 results 
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November 1, 2022/FSDH Research

Key Performance Highlights:

• Nestle Nigeria reported strong revenue growth of 23.2% YoY to N111.0 billion in 3Q22. A strong showing across both segments drove the performance. The revenue growth was primarily driven by a 27.5% YoY increase in the food segment (61.1% of 3Q22 revenue) to N67.8 billion, supported by a 16.9% YoY jump in the Beverage segment (38.9% of 3Q22 revenue) that recorded N43.2 billion in 3Q22. On the geographic front, the revenue growth was driven by a 24.0% YoY increase in domestic revenue to N110.4 billion, while the exports declined by 47.5% YoY to N572 million in 3Q22. The company’s cost of sales jumped more than revenues at 33.7% YoY to N73.9 billion in 3Q22 from N55.3 billion in 3Q21, resulting in a 527 bps gross margin contraction to 33.4% in 3Q22 compared to 38.7% in 3Q21. The net profit edged 4.6% higher to N12.4 billion in 3Q22. Even though there is a strong 23.2% YoY growth in revenue, the increase in the cost of sales and a significant increase in the operating and finance costs led to the deterioration of all profitability margins compared to 3Q21.
   
• The company’s marketing and distribution expenses spurted 24.0% YoY to N15.0 billion in 3Q22; administrative expenses increased by 14.1% YoY to N3.4 billion in 3Q22. The operating income slid 5.5% YoY to N18.7 billion versus N19.8 billion in 3Q21. The finance income dropped 358.0% to a negative N1.9 billion, driven by a net foreign exchange loss of $2.9 billion in 3Q22, while the finance costs decreased by 9.9% YoY to N2.1 billion compared to N2.3 billion in the prior year period. Nestle Nigeria’s profit before tax declined to N14.6 billion in 3Q22, versus N18.2 billion in 3Q21, offset by a lower effective tax rate of 15.3% in 3Q22 versus 34.9% in 3Q21. Consequently, net profit edged 4.6% higher to N12.4 billion in 3Q22, up from N11.9 billion in 3Q21. The company’s earnings per share stood at N15.65 per share in 3Q22 against N14.95 per share in 3Q21.
   
• The company’s gross margin declined 527 bps YoY to 33.4% in 3Q22, as the cost of sales rose at a higher rate than the revenue. The operating and EBITDA margins contracted by 512 bps and 527 bps, respectively. The net profit margin was reduced by 198 bps to 11.2% in 3Q22, owing to higher operating and finance costs, partially offset by a lower effective tax rate. The Food segment recorded a 10.4% YoY fall in operating profit to N10.8 billion in 3Q22, while the Beverage segment’s operating profit rose by 2.0% YoY to N7.8 billion in 3Q22.
   
• On a sequential basis, the revenue in 3Q22 decreased marginally, falling 1.1% QoQ to N111.0 billion in 3Q22, with the cost of sales declining at a slightly higher rate of 1.8% QoQ to N73.9 billion in 3Q22. The company reported a 9.9% QoQ jump in administrative expenses, supported by a 6.4% QoQ rise in marketing and distribution expenses. A decline in finance income to a negative N1.9 billion, offset by a 54.1% QoQ increase in finance costs, resulted in a 4.1% QoQ increase in the net financing costs to N4.1 billion in 3Q22. Profit before tax decreased by 7.8% QoQ, offset by a lower effective tax rate of 15.3% in 3Q22, compared to 38.5% in 2Q22, resulting in a 26.9% QoQ jump in the net profit.
   
• Furthermore, on October 27, Nestle Nigeria Plc declared an interim dividend of N25.00 per 50 kobo ordinary shares for the period ended on September 30, 2022, and is to be paid on December 5, 2022. The dividend will be paid to the stockholders whose names appear on the Register of Members on November 18, 2022.

Market Reaction: Investor reaction to the 3Q22 results was muted as the stock closed flat at N1,215.00 versus a 0.17% fall in the All-Share Index on Monday (31/10). 

Nestle Nigeria Earnings Highlight 3Q22

Source: Company Financials, FSDH