May 2, 2023/CSL Research

Nestle Nigeria plc’s Q1 2023 numbers showed a steady growth in Revenue, up 16.1% y/y to N127.97bn (Q1 2023) from N110.23bn (Q1 2022). This was supported by growth in both the Food Products and Beverages segments. Maggi seasoning, Cerelac, Nan and other household names in the company’s Foods category retained a dominant position, contributing 63.4% to total Revenue and up 22.7% y/y to N81.18bn (Q1 2023) from N66.14bn (Q1 2022). Also, household delight, Milo, Nescafe, Pure Life, and their recent variants in the beverages segment contributed 36.6% to total Revenue while growing marginally by 6.1% y/y to N46.79bn (Q1 2023) from N44.09bn (Q1 2022). However, on a q/q basis, Revenue grew by 12.9%. While the Beverages segment grew by 12.4% to N47.79bn in Q1 2023 from N41.61bn recorded in Q4 2022, Food Products increased by 13.2% to N81.18bn in Q1 2023 from N71.73bn recorded in Q4 2022. We believe the increase in Revenue is reflective of the upward price review in and some volume growth.

Despite the company’s ability to source c.80% 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% y/y to N74.41bn (Q1 2023) from N65.42bn (Q1 2022). However, q/q, Cost of Sales rose marginally by 1.9%. Consequently, Gross Margin rose marginally to 41.9% in (Q1 2023) from 40.7% (Q1 2022). Gross Profit was up 19.5% y/y to N53.56bn in (Q1 2023) from N44.81bn in Q1 2022.

Operating Expenses (adjusted for depreciation) remained elevated as Marketing & Administrative Expenses (adjusted for depreciation) grew significantly by 36.2% to N19.06bn (Q1 2023) from N14bn (Q1 2022). Selling & Distribution Expenses (adjusted for depreciation) also increased by 43.9% to N3.12bn (Q1 2023) from N2.17b (Q1 2022). The management continued its product innovations and campaigns having introduced Nescafe Malty, a blend of Nescafe 3-in-1 and malt in 2022. Consequently, EBITDA margin moderated by 1.5ppts to 24.5% (Q1 2023) from 26% (Q1 2022).

Depreciation & Amortisation increased by 21.5% y/y to N2.72bn (Q1 2023) from N2.24bn (Q1 2022). In the absence of Other Income, Earnings Before Interest and Tax (EBIT) grew by 8.5% y/y to N28.65bn (Q1 2023) from N26.40bn (Q1 2022).

The company’s Finance Income depleted by 58.2% to N1.60bn (Q1 2023) from N3.82bn (Q1 2022) on the back of a 13.5% decrease in Cash and Cash Equivalents to N102.04bn (Q1 2023) from N117.93bn (Q1 2022). On the flip side, Interest Expense increased by 125.8% to N5.34bn (Q1 2023) from N2.37bn (Q1 2022) as long-term Loans & Borrowings increased by 8.7% to N159.86bn (Q1 2023) from N147bn (Q1 2022) and possibly due to the high Interest rate environment.

Net Profit shrank by 9.8% y/y to N16.21bn (Q1 2023) from N17.98bn (Q1 2022).

Our estimates are under review. Current Price: N1,043.80/s

   Source: Company, CSL Research