October 30, 2024/CSL Research
In its recently released 9M 2024 results, Nestle Nigeria Plc. (Nestle) reported a 67.8% y/y Revenue growth to ₦665.29 billion from ₦396.59 billion in 9M 2023. On a quarterly basis, Revenue also grew by 15.6% q/q, reaching ₦258.32 billion in Q3 2024 compared to ₦223.49 billion in Q2 2024. We attribute the Revenue growth to increases in both sales volumes and prices. Across operating segments, Revenue from Nestle’s food segment (production and sale of maggi, cerelac, nan, lactogen, golden morn and energy snacks) advanced by 66.8% y/y to ₦424.26 billion from ₦254.38 billion in 9M 2023. The segment accounted for about 63.8% of total Revenue in 9M 2024 compared to 64.1% in 9M 2023.
Revenue from the beverage segment (production and sale of milo, chocomilo, nescafe, milo ready-to-drink, nestlé pure life, and coffee ready-to-drink) settled at ₦241.03 billion in 9M 2024, contributing 36.2% to overall Revenue, and up 69.5% y/y from ₦142.21 billion in 9M 2023 when it accounted for 35.9% of total Revenue. Sales within the country grew by 66.8% y/y to ₦660.60 billion from ₦396.10 billion in 9M 2023 while export sales surged by 861.7% y/y to ₦4.69 billion from ₦488 million in 9M 2023, supported by the positive impact of the domestic currency depreciation in the period under review.
Nestle’s annualized asset turnover deteriorated to 0.89x in 9M 2024, down from 0.94x in FY 2023, reflecting slight inefficiency from the company in utilizing its asset base for revenue generation during the period.
Source: Company Financials, CSL Research |
In 9M 2024, Nestle’s Cost of Sales increased by 94.1% y/y, reaching ₦458.98bn, up from ₦236.42bn in 9M 2023. This marked growth was driven by significant jumps recorded in raw material costs (+115% y/y to ₦251.12bn), direct overheads (+73% y/y to ₦108.51bn), and purchased finished goods (+113% y/y to ₦44.27bn), all reflecting the impact of the high inflation and currency depreciation in the period. As a result, the cost-to-sales ratio advanced by 9.4 percentage points to 69.0% in 9M 2024, from 59.6% in the previous year. Despite the significant rise in Cost of Sales, Gross Profit for the company increased by 28.8% y/y to ₦206.31bn in 9M 2024, up from ₦160.17bn in 9M 2023. However, the Gross Margin contracted by 9.4 percentage points y/y to 31.0% in 2024, down from 40.4% in the same period of 2023.
Total Operating Expenses for Nestle increased to ₦95.96bn in 9M 2024 compared to ₦68.96bn in 9M 2023, pressured by increases in management fee (+55% y/y to ₦7.11bn), employee costs (+284% y/y to ₦5.25bn), general license fee (+68% y/y to ₦26.17bn), and freight cost (+20% y/y to ₦28.28bn) across the Administrative, and Marketing and Distribution expenses line. Overall, OPEX margin for Nestle in 9M 2024 settled at 14.4%, down from 17.4% in 9M 2023.
The company’s EBITDA for 9M 2024 was ₦131.54bn, a 31.3% y/y increase from ₦100.15bn in the same period in 2023 while EBITDA margin for Nestle in 9M 2024 compressed by 5.5 percentage points to 19.8%, down from 25.3% in 9M 2023. Furthermore, Nestle’s Operating Profit grew by 21.0% y/y to ₦110.84bn in 9M 2024 compared to ₦91.59bn in 9M 2023 while Depreciation and Impairment Loss on assets increased by 141.6% y/y to ₦20.69bn for 9M 2024 from ₦8.56bn in the same period of 2023. The company’s EBIT margin for 9M 2024 stood at 16.7%, 6.4 percentage points lower than the 23.1% recorded in the same period last year.
Net Finance Cost for Nestle jumped by 147.0% y/y to ₦366.23bn in 9M 2024, up from ₦148.24bn in 9M 2023. A breakdown of this number indicates that Finance Income for Nestle in 9M 2024 was ₦2.93bn, significantly lower than ₦8.29bn in 9M 2023. This was driven by a reduced volume of near-cash financial instruments and time deposits in the period. On the flip side, Finance Cost grew by 135.8% y/y to ₦369.16bn in 9M 2024, up from ₦156.53bn in 9M 2023. This increase was primarily due to 1) net exchange loss on the translation of foreign currency denominated balances which increased to ₦285.29bn in 9M 2024 from ₦127.46bn in 9M 2023, and 2) the 188.5% y/y rise in interest expense to ₦83.87bn in 9M 2024 from ₦29.07bn for 9M 2023 due to currency devaluation impact on increased intercompany loan in the period. Notably, unrealized exchange loss for the company increased significantly from ₦173.93bn in FY 2023 to ₦251.59bn in 9M 2024 (H1 2024: ₦231.82bn).
Overall, Nestle’s Loss Before Tax increased by 350.8% y/y to ₦255.39bn in 9M 2024 compared to ₦56.66bn in 9M 2023. After accounting for an income tax credit of ₦71.11bn, Loss after Tax for Nestle settled at ₦184.27bn, up 327.9% y/y from a loss of ₦43.07bn in 9M 2023. Noteworthy is the improved q/q bottom-line numbers for Nestle hinged on cost moderations and the realignment of short-term finance obligations to long tenor debt positions, hence a reduced finance cost in the period. Loss Before Tax for Q3 2024 stand-alone was ₦7.36bn compared to a loss position of ₦34.23bn for Q2 2024 stand-alone.
We have a target price of ₦981.33/s for Nestle with a HOLD recommendation. Current Price: ₦885.00/share.
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NESTLE 9M 2024 Quick Take.pdf
