Revenue Growth Drives Impressive Profitability Recovery: In its Q1:2025 results, Nestlé Nigeria demonstrated robust revenue growth of 60.71% YoY to NGN294.88 billion from NGN183.48 billion in Q1:2024. This strong topline performance significantly outpaced the 30.31% increase in cost of sales to NGN175.16 billion, resulting in an exceptional 143.99% growth in gross profit to NGN119.72 billion. The improved gross profit margin, which expanded from 26.74% to 40.60%.

Operational Cost Management: Despite substantial revenue growth, the company faced increased operational expenses, with marketing and distribution costs rising by 76.58% to NGN34.85 billion and administrative expenses increasing by 32.78% to NGN11.00 billion. However, these increases were proportionally lower than the revenue growth, demonstrating improved operational leverage. Additionally, impairment of financial assets decreased dramatically by 98.51% to just NGN1.83 million. These factors contributed to an impressive 254.40% increase in operating profit to NGN74.15 billion, underscoring the company’s enhanced operational efficiency.

Significant Financial Structure Improvement: Nestlé Nigeria achieved a remarkable turnaround in its financial position, with finance costs decreasing by 89.27% to NGN23.47 billion from NGN218.77 billion in the previous year, indicating successful debt management and potentially improved foreign exchange positioning. Although finance income decreased by 73.06% to NGN474.43 million, the net finance cost dramatically improved by 89.41% to NGN22.99 billion, substantially enhancing the company’s overall profitability.

Bottom Line Transformation: The combined effect of strong revenue growth, expanded margins, controlled operational costs, and dramatically reduced finance costs resulted in a profit before tax of NGN51.15 billion, a remarkable turnaround from a loss of NGN196.09 billion in Q1 2024.

Despite moving from a tax credit of NGN53.40 billion in Q1:2024 to a tax expense of NGN20.98 billion in Q1 2025, the company achieved a net profit of NGN30.18 billion, reversing the NGN142.68 billion loss reported in the same period last year.

Balance Sheet Strengthening: The company’s balance sheet shows improved stability with total assets increasing by 15.91% to NGN898.92 billion. Non-current assets grew modestly by 3.29% to NGN516.31 billion, while current assets increased substantially by 38.80% to NGN382.61 billion.

Notable changes include a 59.33% increase in inventories to NGN181.13 billion and a significant
851.53% rise in prepayments to NGN159.82 billion, likely reflecting strategic procurement to mitigate supply chain risks. However, trade receivables decreased dramatically by 94.60% to NGN5.44 billion, suggesting improved collection efficiency or changes in customer credit policies. 

Liability and Equity Position: Total liabilities increased by 13.57% to NGN961.18 billion, with current liabilities rising by 78.09% to NGN409.54 billion, primarily driven by an 87.28% increase in trade and other payables to NGN274.47 billion and a 197.70% increase in current loans and borrowings to NGN56.79 billion. Non-current liabilities decreased by 10.50% to NGN551.64 billion, reflecting debt restructuring and the elimination of deferred tax liabilities. While the company still reports negative equity of NGN62.26 billion, this represents a 12.08% improvement from the NGN70.81 billion negative equity position in Q1: 2024, indicating progress toward balance sheet recovery.

Outlook: Nestlé Nigeria is implementing a series of initiatives aimed at addressing its financial
challenges and positioning itself for recovery in 2025. The company is also adopting a more strategic pricing approach, ensuring that price increases are balanced with affordability to maintain consumer demand. Given the maintained stability in foreign exchange rate, the company has been able to continually reduce its foreign debt exposure which has aided its return to profitability. The company stills remains a premium goods item in Nigerian households.

At this  stage, we maintain a NEUTRAL rating on Nestlé Nigeria Plc. A clear improvement in earnings, debt restructuring, and liquidity levels will be key factors in reassessing this outlook in 2025.

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