Nestle Nigeria Plc FY 2023: FX Devaluation Impact on FCY Loans Leads to Net Loss

Image Credit: Nestle Nigeria Plc

February 28, 2024/CSL Research

Nestle Nigeria Plc’s (Nestle) recently released audited FY 2023 results showed the company’s Revenue increased by 22.45% y/y to N547.12bn in FY 2023 from N446.82bn in FY 2022 driven by both a 30% y/y and 10.6% y/y increase in its Food and Beverage segments to N353.70bn and N193.42bn in 2023 from N271.99bn and N174.83bn in 2022. On q/q basis, Nestle reported 11.6% increase in its Revenue to N150.53bn in Q4 2023 from N134.82bn in Q3 2023. Its food and beverage segments advanced by 12.7% and 9.6% q/q to N99.32bn and N51.21bn in Q4 2023 from N88.11bn and N46.71bn in Q3 2023 respectively. We note that a substantial part of its Revenue was generated from its domestic sales, as domestic sales grew by 23.12% to N545.94bn in 2023 from N443.41bn in 2022 while contributing 99.79% to the company’s total Revenue. On the other hand, the company exports sales declined 66.2% y/y to N1.15bn in 2023 from N3.41bn in 2022, contributing a paltry 0.21% to the company’s total Revenue.

The company’s Cost of Sales (adjusted for depreciation) grew slower than Revenue, up 13.21% y/y to N321.77bn in 2023 from N284.23bn in 2022. An increase in raw materials cost to N284.16bn in 2023 from N223.68bn in 2022 drove the y/y growth in Cost of Sales (adjusted for depreciation). Gross Profit advanced by 38.60% y/y to N225.34bn in 2023 from N162.59bn in 2022 bringing its Gross Profit Margin to 41.2% in 2023 from 36.4% in the prior year. On a q/q basis, the company’s cost of sales (adjusted for depreciation) was up by 14.4% to N91.35bn in Q4 2023 from N79.83bn in Q3 2023 bringing its Gross Profit to N59.18bn in Q4 2023 from N55bn in Q3 2023.

The company’s Total Operating Expense (adjusted for depreciation) grew to N90.37bn in 2023 from N65.34bn in 2022, a 38.3% growth. An increase in marketing and distribution expenses (adjusted for depreciation) to N72.61bn in 2023 from N56.36bn in 2022 and administrative expenses (ex-depreciation) to N17.75bn in 2023 from N8.99bn in 2022 drove the significant rise in the company’s OPEX. Nestle reported writeback on financial assets of N483m in 2023 from a loss of N29m in 2022. Overall, the company’s EBITDA grew to 39.3% to N135.46bn in 2023 from N97.22bn in 2022.

Depreciation grew 19.69% y/y to N11.67bn in 2023 from N9.75bn in 2022 bringing its operating profit to N123.79bn (+41.52% y/y) in 2023 from N87.47bn in 2022. Net Finance Cost rose to N227.81bn in 2023 from N16.36bn in 2022 due to increased interest payment on FX denominated loans. The company’s high Net Finance Cost was driven by the surge in its Finance Cost to N233.50bn in 2023 from N21.14bn, despite an increase in its Finance Income by 19.13% to N5.69bn in 2023 from N4.78bn in 2022. The company’s high Net Finance Cost resulted in a Loss Before Tax of N104.03bn in 2023 compared with a Profit Before Tax of N71.11bn in 2022. A tax credit of N24.55bn in 2023 brought the company’s Net Loss to N79.47bn in 2023 compared with a profit of N48.97bn in 2022. Due to the loss position in 2023, the company did not recommend any dividend pay out to its shareholders in 2023.

Our price target and recommendation are being reviewed.

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