FSDH Initial Reaction: Nestle Nigeria 1Q24 results 
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May 7, 2024/FSDH Research

Key Performance Highlights:

• Nestle Nigeria reported robust revenue growth of 43.4% YoY to N183.5 billion in 1Q24, primarily driven by a 44.2% YoY jump in the Food segment to N117.0 billion, further boosted by a 42.0% YoY rise in the Beverage segment to N66.5 billion. Geography-wise, domestic revenue grew 42.9% YoY to N182.5 billion, while exports soared 275.8% YoY to N964 million in 1Q24. However, the company’s cost of sales ballooned 76.1% YoY, which was greater than the revenue rise, to N134.4 billion in 1Q24, resulting in a 1,362 bps gross margin contraction to 26.7% in 1Q24 compared to 40.4% in 1Q23.
   
• The company’s marketing and distribution expenses marginally increased 2.1% YoY to N19.7 billion in 1Q24, while the administrative expenses vaulted 128.6% to N8.3 billion from N3.6 billion in 1Q23. Consequently, the operating income slumped 27.0% YoY to N20.9 billion in 1Q24. Although the company’s finance income increased 10.4% YoY to N1.8 billion in 1Q24, Nestle recorded a 40.9x jump in finance costs to N218.8 billion in 1Q24 compared to N5.3 billion in 1Q24 due to the devaluation of the Naira resulting in huge fx losses. Despite tax credits of N53.4 billion in 1Q24, Nestle Nigeria reported a net loss of N142.7 billion in 1Q24, vs. a net profit of N16.2 billion in 1Q23. Likewise, the company’s loss per share was N180.01 in 1Q24 versus earnings per share of N20.45 in 1Q23.
   
• The company’s margins took a hit across the board in 1Q24, mainly due to rising costs and huge FX losses. The company’s EBITDA margin decreased by 1,161 bps YoY to 12.9%, and the operating margin fell by 1,099 bps YOY to 11.4% in 1Q24. The Food segment recorded a 51.2% YoY decline in operating profit to N9.2 billion in 1Q24, while the Beverage segment’s operating profit rose by 19.0% YoY to N11.8 billion.
   
• In a sequential performance, the revenue in 1Q24 surged 21.9% QoQ to N183.5 billion (4Q23: N150.5 billion), while the cost of sales grew relatively higher by 43.7% QoQ to N134.4 billion in 1Q24 (4Q23: N93.5 billion). The company witnessed a 32.5% QoQ rise in marketing and distribution expenses to N19.7 billion (4Q23: N14.9 billion) and a 20.3% QoQ fall in administrative costs to N8.3 billion in 1Q24 (4Q23: N10.4 billion), while net finance costs soared 149.2% QoQ to N217.0 billion (4Q23: N87.1 billion). Consequently, the company’s net loss increased 225.0% QoQ to N142.7 billion in 1Q24. Moreover, the company’s margins witnessed shrinkage in 1Q24 on a QoQ basis as well, with the gross margin falling by 1,113 bps, the operating margin declining by 999 bps, and the EBITDA margin decreasing by 1,183 bps.
   
• With effect from 16 March 2024, the Board of Directors approved a change in the measurement of Land, Building, Plant and Machinery from the historical cost model to the revaluation model. Accordingly, since 1Q24, the company adopted the revaluation model for Land, Building, Plant and Machinery at fair value less accumulated depreciation and impairment losses. Going forward, the revaluation of these assets will be performed every 3 years through an independent certified valuer to ensure that the carrying amount of the assets does not differ materially from its fair value. Furthermore, the assets under construction, i.e., Capital Work in Progress (CWIP), will also follow the revaluation model at the time of the capitalization.

Market Reaction: Investor’s reaction to the 1Q24 results was muted as the stock remained unchanged at N796.00 versus a 0.55% rise for the All-Share Index (2/5). Moreover, the stock again remained unchanged at N796.00 versus a 0.83% rise for the All-Share Index on 3/5.

Nestle Nigeria Earnings Highlight 1Q24

Source: Company Financials, FSDH