FSDH Initial Reaction: Nestle Nigeria 3Q23 results 
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November 3, 2023/FSDH Research

Key Performance Highlights:

• Nestle Nigeria reported strong revenue growth of 21.4% YoY to N134.8 billion in 3Q23. The revenue growth was primarily driven by a 29.9% YoY growth in the Food segment to N88.1 billion, supported by an 8.1% YoY jump in the Beverage segment to N46.7 billion. On the geography front, the revenue surged 22.0% YoY in the domestic market to N134.7 billion, while export revenue tumbled 80.6% YoY to N111 million in 3Q23. The company’s cost of sales increased 10.9% YoY, however, a proportionately greater increase in sales resulted in a 579 bps gross margin expansion to 39.2% in 3Q23 compared to 33.4% in 3Q22. However, the net profit declined to N6.9 billion as the company’s solid revenue growth was offset by significantly higher finance costs in 3Q23.
   
• The company’s marketing and distribution expenses increased 23.6% YoY to N18.6 billion, while the administrative expenses increased by 3.4% to N3.5 billion in 3Q23. Consequently, the operating income grew 64.7% YoY to N30.8 billion in 3Q23. The company experienced a rise in its finance income to N469 million in 3Q23. Furthermore, the company reported significantly higher finance costs that spurted 8.9x YoY to N18.8 billion (3Q22: N2.1 billion). The increase in finance cost was primarily due to significantly increased interest expenses to N15.1 billion (vs. N2.5 billion in 3Q22) and a N3.6 billion net foreign exchange loss (vs. N431 million fx gain in 3Q22). Consequently, Nestle Nigeria’s net profit came to N6.9 billion in 3Q23. Likewise, the company’s earnings per share was N8.72 versus N15.65 in 3Q22.
   
• Looking at margins, the company’s margins (except for the net margin) increased across the board in 3Q23. The company’s EBITDA margin increased 604 bps YoY to 25.1% despite considerably higher marketing and distribution expenses. The operating margin increased 600 bps YOY to 22.8%, while the gross margin was up 579 bps YoY to 39.2% in 3Q23. The Food segment recorded an 80.9% YoY growth in operating profit to N19.6 billion in 3Q23, while the Beverage segment’s operating profit rose by 42.4% to N11.2 billion.
   
• In a sequential performance, the revenue in 3Q23 was marginally up by 0.8% QoQ to N134.8 billion, while the cost of sales grew by 5.0% QoQ to N82.0 billion in 3Q23. The company witnessed an 11.5% QoQ drop in marketing and distribution expenses to N18.6 billion (2Q23: N21.0 billion) and a 35.2% QoQ rise in administrative costs to N3.5 billion in 3Q23 (2Q23: N2.6 billion), while finance costs came down significantly by 84.5% QoQ to N18.8 billion (2Q23: N121.7 billion). The company reported a net profit of N6.9 billion in 3Q23 versus a N58.7 billion net loss in 2Q23. Moreover, the company’s margins witnessed a decline in 3Q23 on a QoQ basis, with the gross margin declining by 243 bps, the operating margin falling by 118 bps, and the EBITDA margin going down by 95 bps.

Market Reaction: Investor’s reaction to the 3Q23 results was muted as the stock remained unchanged at N1,050.00 versus a 1.45% gain for the All-Share Index (30/10).

Nestle Nigeria Earnings Highlight 3Q23

Source: Company Financials, FSDH