August 2, 2023/CSL Research
Nestle Nigeria’s H1 2023 numbers reflected the disruptions in the macroeconomic space. Despite inflationary pressures, the company’s Revenue advanced by 17.7% y/y to N261.77bn (H1 2023) from N222.45bn (H1 2022). This was supported by growth in both Food Products and Beverages segments to N166.27bn and N95.50bn respectively from N132.49bn and N90.03bn in the prior year. On a q/q basis, Nestle’s Revenue was up 4.6% q/q to N133.80bn in Q2 2023 from N127.970bn in the preceding quarter, buoyed by the 4.8% and 4.1% q/q growth in its food products and beverages segment to N85.91bn and N48.70bn respectively in Q2 2023 (from N81.18bn and N46.79bn in Q1 2023).
The Cost of Sales increased by 8.6% y/y to N154.44bn in H1 2023 from N142.25bn in H12022 while Gross profit advanced by 33.8% y/y to N107.34bn from N80.21bn in H12023 and Gross Profit Margin grew to 42.5% (+50ppts) in H1 2023 from 37.5% in H1 2022. Operating Expenses (adjusted for depreciation) remained elevated as Marketing & Administrative Expenses (adjusted for depreciation) materially shot up by 42.5% to N39.76bn (H1 2023) from N27.90bn (H1 2022). The Selling & Distribution Expenses (adjusted for depreciation) also increased by 8% to N5.14bn (H1 2023) from N4.76bn (H1 2022). Nestle recorded a growth of 19.6% in its Depreciation & Amortisation to N5.48bn from N4.58bn in H1 2023. Regardless of the zero-inflow recorded for its Other Income segment, Nestle’s Earnings Before Interest and Tax (EBIT) still grew by 31.6% y/y to N60.80bn (H1 2023) from N46.18bn (H1 2023).
The company’s bottom line performance was negatively impacted by the exponential rise in its Net Finance Cost to N129.9bn in H1 2023. Nestle’s Net Finance Income came in at a paltry N7.82bn in comparison to the high surge of N129.91bn in its Finance Expense. This high growth in Finance Expense was due to the devaluation of the Naira as the company reported net foreign exchange loss of N123.77bn in H1 2023 from N2.16bn in H1 2022. Consequently, Nestle recorded a Loss Before tax of N69.12bn in H1 2023 compared with a Profit Before Tax of N43.74bn in H1 2022 while its Loss After Tax came in at N49.98bn (supported by a tax credit of N19.14bn) compared with a Profit After Tax of N15.99bn in H1 2022.
We have a BUY recommendation on Nestle, with a price target of N1,414.70. Current Price: N1,175.00/s.
| Nestle Nigeria Plc. | ||||||||
| H1 2023 | ||||||||
| Nm, except where mentioned otherwise | H1’23 | H1’22 | y/y | Q2’23 | Q1’23 | q/q | ||
| Revenue | 261,770 | 222,451 | 17.7% | 133,799 | 127,970 | 4.6% | ||
| Cost of Sales (Ex-Dep) | (150,602) | (139,042) | 8.3% | (76,188) | (74,414) | 2.4% | ||
| Gross Profit | 111,167 | 83,409 | 33.3% | 57,611 | 53,556 | 7.6% | ||
| Marketing and Administrative expenses (Ex-Dep) | (39,763) | (27,895) | 42.5% | (20,699) | (19,065) | 8.6% | ||
| Selling and Distribution Expenses (Ex-Dep) | (5,137) | (4,756) | 8.0% | (2,016) | (3,120) | -35.4% | ||
| Impairment (Loss)/Writeback | – | – | n/a | 0 | 0 | n/a | ||
| EBITDA | 66,267 | 50,758 | 30.6% | 34,896 | 31,371 | 11.2% | ||
| Depreciation and Amortization | (5,475) | (4,576) | 19.6% | (2,756) | (2,718) | 1.4% | ||
| Operating Profit | 60,793 | 46,181 | 31.6% | 32,140 | 28,653 | 12.2% | ||
| Other Income | – | – | n/a | 0 | 0 | n/a | ||
| EBIT | 60,793 | 46,181 | 31.6% | 32,140 | 28,653 | 12.2% | ||
| Net Finance Income | (129,910) | (2,442) | n/a | (126,161) | (3,749) | 3264.8% | ||
| Profit before tax | (69,118) | 43,740 | -258.0% | (94,021) | 24,903 | -477.5% | ||
| Minimum tax | – | – | n/a | 0 | 0 | n/a | ||
| Tax expense | 19,136 | (15,989) | -219.7% | 27,830 | (8,694) | -420.1% | ||
| Profit from continuing operations | (49,981) | 27,751 | -280.1% | (66,191) | 16,209 | -508.4% | ||
| Profit from discontinued operations | – | – | n/a | – | – | n/a | ||
| Net Profit | (49,981) | 27,751 | -280.1% | (66,191) | 16,209 | -508.4% | ||
| Net income attributable to equity holders | (49,981) | 27,751 | -280.1% | (66,191) | 16,209 | -508.4% | ||
| Margins: | H1’23 | H1’22 | y/y | Q2’23 | Q1’23 | q/q | ||
| Gross margin | 42.5% | 37.5% | 5.0ppts | 43.1% | 41.9% | 1.2ppts | ||
| Opex Margin | 17.2% | 14.7% | 2.5ppts | 17.0% | 17.3% | -0.4ppts | ||
| EBITDA Margin | 25.3% | 22.8% | 2.5ppts | 26.1% | 24.5% | 1.6ppts | ||
| PBT Margin | -26.4% | 19.7% | -46.1ppts | -70.3% | 19.5% | -89.7ppts | ||
| Effective Tax Rate | 27.7% | 36.6% | -8.9ppts | 29.6% | 34.9% | -5.3ppts | ||
| Net margin | -19.1% | 12.5% | -31.6ppts | -49.5% | 12.7% | -62.1ppts | ||
Source: Company, CSL Research
