February 28, 2024/Cordros Report
Nestle Nigeria Plc (NESTLE) published its 2023FY audited financials after the close of market yesterday (27 February). The result revealed a loss per share of NGN100.26 in 2023FY (vs EPS of NGN61.77 in 2022FY) due to the heavy foreign exchange loss incurred (NGN195.07 billion | 2022FY: NGN8.05 billion).
Revenue increased by 22.4% y/y in 2023FY (2022FY: +27.0% y/y), underpinned by sturdy growth across the company’s Food (+30.0% y/y | 64.6% of revenue) and Beverage (+10.6% y/y | 35.4% of revenue) segments. We attribute the strong revenue growth to the positive impact of higher pricing and resilient demand for NESTLE’s products. On pricing, our channel checks showed that the company raised prices by c. 20.8% in 2023FY.
The company’s effective cost-transfer strategy resulted in a noteworthy 483bps y/y expansion in gross margin to 39.7% (2022FY: 34.9%) driven by the robust revenue growth (+22.4% y/y), which outpaced increases in the cost of sales (+13.4% y/y). We highlight that cost pressures in the year stemmed particularly from increased inflationary pressures on domestic food prices (2023 average: 33.93%). Consequently, EBITDA and EBIT margins printed 24.8% (+300bps y/y) and 22.6% (+305bps y/y), respectively, in 2023FY, following the stronger gross margin amid a rise in operating expenses (+37.5% y/y).
Net finance costs (+12.9x y/y) rose markedly in 2023FY, as a significantly higher foreign exchange loss (NGN195.07 billion | 2022FY: NGN8.05 billion) influenced a 10.0x y/y increase in finance cost. Additionally, interest expense on financial liabilities surged by 203.0% y/y, majorly attributed to the revaluation of its foreign-denominated loans (NGN402.32 billion | 2022FY: NGN155.30 billion).
Consequently, NESTLE reported a pre-tax loss of NGN104.03 billion in 2023FY (vs PBT of NGN71.11 billion in 2022FY). After accounting for a tax credit of NGN24.55 billion, the loss after tax decreased to NGN79.47 billion (vs PAT of NGN48.97 billion in 2022FY).
Comment: NESTLE experienced a complete depletion of its net operating gains due to its foreign exchange exposure in loans and borrowings in the period. Amid a still challenging operating environment, we anticipate that the company will maintain its efforts to protect margins in 2024E by potentially raising prices further, leveraging its strong market leadership. Additionally, strategies such as branding, product innovation, and enhancing route-to-market channels are expected to contribute to revenue growth. However, challenges stemming from the FX illiquidity and naira devaluation will likely pressure the company’s profitability. YTD, NESTLE is down -10.0%, compared to the Consumer Goods index (+46.8%) and the broader All-Share index (+34.5%). Our estimates are under review.
