October 29, 2024/Cordros Report
Nestle Nigeria Plc (NESTLE) published their Q3-24 unaudited results yesterday (28 October), revealing a Q3-24 standalone loss per share of NGN9.28 (vs EPS of NGN8.72 in Q3-23). This decline was mainly driven by a sharp increase in the cost of sales (+118.7% y/y) and a significant rise in net finance costs (+176.1% y/y). As a result, the company’s loss per share rose to NGN232.47 in 9M-24 (9M-23: NGN54.33).
In Q3-24, NESTLE’s revenue saw a robust 91.6% y/y increase, fueled by substantial growth in both the Food (+85.7% y/y | 63.3% of revenue) and Beverages (+102.8% y/y | 36.7% of revenue) segments. On a quarter-on-quarter basis, revenue grew by 15.6%, supported by moderate expansion in the Food (+13.9% q/q) and Beverage (+18.6% q/q) segments. Management attributed this strong performance to positive volume growth and higher pricing, with gains also stemming from new product introductions. On pricing, our channel checks reveal that NESTLE implemented average prices increase of c. 31.3% q/q across their product portfolio.
Gross margin narrowed (-860bps y/y) to 30.6% in Q3-24 (Q3-23: 39.2%) following significant cost pressures (+118.7% y/y) in the period. Similar to previous quarters, the elevated costs reflects the impact of high inflationary pressures, notably in raw material expenses (+114.9% y/y) and overhead costs (+73.0% y/y). As a result, both EBITDA (-403bps y/y) and EBIT (-435bps y/y) margins dipped to 21.1% and 18.5%, respectively, due to a 43.5% y/y increase in operating expenses.
In addition, net finance cost saw a substantial increase of 176.1% y/y to NGN50.62 billion in the quarter, owing to the notable rise in finance costs (+171.5% y/y) in the period. The higher finance costs stemmed from the increase in interest expenses on financial liabilities (+95.0% y/y) and net foreign exchange loss (+140.3% y/y to NGN21.58 billion), reflecting both the impact of the elevated interest rate environment and naira devaluation.
Overall, NESTLE reported a pre-tax loss of NGN2.86 billion in Q3-24 (vs PBT of NGN12.46 billion in Q3-23). Following a tax expense of NGN4.50 billion (+18.9% y/y), the loss after tax settled at NGN7.36 billion (vs PAT of NGN6.91 billion in Q3-23).
Comment: Despite strong revenue growth, persistent cost pressures and FX challenges continue to weigh heavily on NESTLE’s earnings, creating downside risks in the near term. Notably, the company’s third-quarter loss also marked a substantial reduction over the last two quarters, signaling gradual improvement despite ongoing challenges. Given NESTLE’s strong market position, strategic pricing, and commitment to product innovation, we believe there is room for continued revenue growth over the rest of the year, even with cost pressures and currency depreciation as persistent headwinds to profitability. Our estimates are under review.
