FSDH Initial Reaction: Nestle Nigeria 1Q23 results 
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May 3, 2023/FSDH

Key Performance Highlights:

• Nestle Nigeria reported strong revenue growth of 16.1% YoY to N128.0 billion in 1Q23. The revenue growth was primarily driven by a 22.7% YoY growth in the Food segment to N81.2 billion, supported by a 6.1% YoY jump in the Beverage segment to N46.8 billion. On the geography front, the revenue surged 18.0% YoY in domestic revenue to N127.7 billion, while export revenue tumbled 87.3% YoY to N257 million in 1Q23. The company’s cost of sales jumped by 13.9% YoY, however, a greater increase in sales resulted in a 113 bps gross margin expansion to 40.4% in 1Q23 compared to 39.2% in 1Q22. However, the net profit declined by 9.8% YoY to N16.2 billion as the company’s solid revenue growth was impacted by the higher operating expenses and a significant increase in finance costs. Consequently, Nestle Nigeria’s net profit margin contracted 365 bps YoY to 12.7% in 1Q23 (1Q22: 16.3%).
   
• The company’s marketing and distribution expenses surged 35.9% YoY to N19.3 billion in 1Q23, while the administrative expenses jumped by 40.1% to N3.7 billion in 1Q23. Ultimately, the operating income grew 8.5% YoY to N28.7 billion in 1Q23. The company experienced a fall in its finance income by 58.2% YoY to N1.6 billion in 1Q23. Furthermore, the company reported significantly higher finance costs that rose 125.8% YoY to N5.3 billion (1Q22: N2.4 billion). The increase in finance cost was primarily due to a rise in interest expense paid on the financial liability of N5.9 billion in 1Q23, compared to N2.4 billion paid in 1Q22. Consequently, Nestle Nigeria’s net profit declined 9.8% YoY to N16.2 billion in 1Q23. Likewise, the company’s earnings per share were down 9.8% YoY to N20.45 per share in 1Q23 from N22.68 per share in 1Q22.
   
• Looking at margins, the company’s margins (except for the gross margin) declined across the board in 1Q23. The company’s EBITDA margin declined 147 bps YoY to 24.5% due to the higher administrative costs and marketing and distribution expenses. The operating and net margin slumped 156 bps and 365 bps YoY to 22.4% and 12.7%, respectively, while the gross margin was up 113 bps YoY to 40.4% in 1Q23. The Food segment recorded a 20.5% YoY growth in operating profit to N18.8 billion in 1Q23, while the Beverage segment’s operating profit declined 8.7% YoY to N9.9 billion.
   
• In a sequential performance, the revenue in 1Q23 surged 12.9% QoQ to N128.0 billion, while the cost of sales grew marginally by 1.9% QoQ to N76.3 billion in 1Q23. The company witnessed a 38.6% QoQ rise in marketing and distribution expenses to N19.3 billion (4Q22: N14.0 billion) and a 46.0% QoQ jump in administrative costs to N3.7 billion in 1Q23 (4Q22: N2.5 billion), while finance costs declined 53.4% QoQ to N5.3 billion (4Q22: N11.5 billion). The company’s net profit vaulted 83.9% QoQ to N16.2 billion in 1Q23. Moreover, the company’s margins witnessed improvement in 1Q23 on a QoQ basis, with the gross margin expanding by 641 bps, the operating margin expanding by 299 bps, the EBITDA margin expanding by 276 bps, and the net margin growing by 489 bps.

Market Reaction: Investor’s reaction to the solid 1Q23 results was muted as the stock remained unchanged at N1,043.80 versus a 0.20% loss for the All-Share Index (2/5).

Nestle Nigeria Earnings Highlight 1Q23

Source: Company Financials, FSDH