July 30, 2024/Cordros Report
NESTLE published its Q2-24 unaudited results after market close yesterday (29 July), reporting a lower loss per share of NGN43.18 (Q2-23: NGN83.50) translating to a loss per share of NGN223.19 in H1-24 (vs loss per share of NGN63.06 in H1-23). The performance in the period was undermined by substantial increase in the costs of sales (+85.9% y/y).
Revenue advanced by 67.0% y/y in Q2-24 (H2-24: +55.5% y/y), driven by strong performance in NESTLE’s Food (+68.8% y/y | 64.3% of revenue) and Beverages (+64.0% y/y | 35.7% of revenue) segments, reflecting consumer’s resilient demand for NESTLE’s products. Also, our channel checks revealed that average prices in the food and beverage segments increased by 12.6% y/y and 15.3% y/y, respectively, during the period. NESTLE’s export revenue also saw a significant increase, growing by 14.7x y/y to NGN1.89 billion (Q2-23: NGN120.44 million) although domestic revenue continued to dominate, comprising 99.2% of the total revenue. Sequentially, on a quarter-on-quarter basis, revenue grew by 21.8% reflecting increases across the Food (+22.7% y/y) and Beverages (+20.2% y/y) segments.
However, gross profit margin contracted by 661bps y/y to 35.0% in Q2-24 (H2-24: -972bps y/y to 31.3%), due to the heightened cost of sales (+85.9% y/y) driven by inflationary pressures on domestic food prices. Notably raw material costs increased by 90.5% y/y in the period.
Consequently, EBITDA and EBIT margins both contracted, falling to 23.3% (-280bps y/y) and 18.9% (-516bps y/y), respectively, amid a 53.7% y/y rise in operating expenses.
In Q2-24, NESTLE reported a 21.8% y/y decrease in net finance cost to NGN98.60 billion in Q2-24 (Q2-23: NGN126.16 billion), owing to a 21.8% y/y decrease in its finance cost. This reduction was primarily driven by a 39.5% y/y decline in exchange loss, despite a 238.4% y/y increase in interest expenses on interest-bearing loans and borrowings (+62.5% YTD to NGN653.92 billion) in the period.
The company recorded a lower pre-tax loss of NGN56.44 billion in Q2-24 (Q2-23: NGN94.02 billion). An income tax credit of NGN53.40 billion in Q2-24 resulted in a loss after tax of NGN34.23 billion (Q2-23: NGN66.19 billion).
Comment: Like peers in the industry, NESTLE’s topline performance remained strong in Q2-24, but the gains were offset by increased costs. For the rest of the year, we anticipate continued topline growth driven by price increases across product categories, the launch of innovative and affordable products, and enhanced distribution reach, which should boost volumes. On the higher costs, the company plans to reduce production costs through energy efficiency measures and by substituting imported inputs with local content. However, despite these efforts, we expect elevated cost pressures and foreign exchange losses already incurred to impact NESTLE’s 2024FY earnings. Our estimates are under review.
