FSDH Initial Reaction: Nestle Nigeria 2Q23 results 
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August 1, 2023/FSDH

Key Performance Highlights:

• Nestle Nigeria reported strong revenue growth of 19.2% YoY to N133.8 billion in 2Q23. The revenue growth was primarily driven by a 28.3% YoY growth in the Food segment to N85.1 billion, supported by a 6.1% YoY jump in the Beverage segment to N48.7 billion. On the geography front, the revenue surged 19.4% YoY in the domestic market to N133.7 billion, while export revenue tumbled 58.3% YoY to N120 million in 2Q23. The company’s cost of sales increased 3.8% YoY, however, a greater increase in sales resulted in an 868 bps gross margin expansion to 41.6% in 2Q23 compared to 32.9% in 2Q22. However, the net profit declined to N58.7 billion as the company’s solid revenue growth was impacted by the higher cost of sales, increased marketing and distribution expenses, and a significant increase in finance costs.
   
• The company’s marketing and distribution expenses increased 48.5% YoY to N20.9 billion in 2Q23, while the administrative expenses decreased by 16% to N2.6 billion in 2Q23. Ultimately, the operating income grew 62.5% YoY to N32.1 billion in 2Q23. The company experienced a rise in its finance income to N3 billion in 2Q23. Furthermore, the company reported significantly higher finance costs that spurted 26.5x YoY to N121.7 billion (2Q22: N4.6 billion). The increase in finance cost was primarily due to a net foreign exchange loss of N123.2 billion versus 2.1 billion in 2Q22. Consequently, Nestle Nigeria’s net loss came at N58.7 billion in 2Q23. Likewise, the company’s loss per share was at N74.04 versus an earnings per share of N12.33 in 2Q22.
   
• Looking at margins, the company’s margins (except for the net margin) increased across the board in 2Q23. The company’s EBITDA margin increased 637 bps YoY to 26.1% despite considerably higher marketing and distribution expenses. The operating margin increased 640 bps YOY to 24%, while the gross margin was up 868 bps YoY to 41.6% in 2Q23. The Food segment recorded an 87.5% YoY growth in operating profit to NN23.6 billion in 2Q23, while the Beverage segment’s operating profit slumped to N7.8 billion.
   
• In a sequential performance, the revenue in 2Q23 surged 4.6% QoQ to N133.8 billion, while the cost of sales grew marginally by 2.4% QoQ to N78.1 billion in 2Q23. The company witnessed an 8.5% QoQ rise in marketing and distribution expenses to N21 billion (1Q23: N19.3 billion) and a 29.9% QoQ drop in administrative costs to N2.6 billion in 2Q23 (1Q23: N3.7 billion), while finance costs vaulted 26.5x QoQ to N121.7 billion (1Q23: N5.3 billion). The company reported net loss N58.7 billion in 2Q23 versus an N16.2 billion net profit in 1Q23. Moreover, the company’s margins witnessed improvement in 2Q23 on a QoQ basis, with the gross margin expanding by 125 bps, the operating margin expanding by 163 bps, and the EBITDA margin expanding by 157 bps.

Market Reaction: Investor’s reaction to the 2Q23 results was muted as the stock remained unchanged at N1,175.00 versus a 1.10% loss for the All-Share Index (31/7).

Nestle Nigeria Earnings Highlight 2Q23

Source: Company Financials, FSDH