Nestle records loss after tax of N79.5bn on huge FX loss

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Nestle

Leading food and beverage company, Nestle Nigeria Plc, recorded a loss after tax of N79.5 billion at the end of the financial year 2023 due to the heavy foreign exchange loss of N195.07 billion incurred from its operations in the review period.

In the 2022 financial year, the company reported a profit after tax of N48.97 billion while foreign exchange loss stood at N8.05 billion.

A pre-tax loss of N104.03 billion was reported in 2023 compared with a profit before tax of N71.11 billion in 2022.

The 2023 audited financial result revealed a loss per share of N100.26 compared to EPS of N61.77 in 2022FY.

Meanwhile, revenue increased by 22.4 percent y/y in 2023FY (2022FY: +27.0% y/y), underpinned by sturdy growth across the company’s Food (+30.0% y/y | 64.6% of revenue) and Beverage (+10.6% y/y | 35.4% of revenue) segments.

The strong revenue growth was attributed to the positive impact of higher pricing and resilient demand for NESTLE’s products.

On pricing, the company raised prices by c. 20.8 percent in 2023FY.

The company’s effective cost-transfer strategy resulted in a noteworthy 483bps y/y expansion in gross margin to 39.7 percent (2022FY: 34.9%) driven by the robust revenue growth (+22.4% y/y), which outpaced increases in the cost of sales (+13.4% y/y).

Analysts at Cordros Securities said, “We highlight that cost pressures in the year stemmed particularly from increased inflationary pressures on domestic food prices (2023 average: 33.93%). Consequently, EBITDA and EBIT margins printed 24.8% (+300bps y/y) and 22.6% (+305bps y/y), respectively, in 2023FY, following the stronger gross margin amid a rise in operating expenses (+37.5% y/y).”

Net finance costs (+12.9x y/y) rose markedly in 2023FY, as a significantly higher foreign exchange loss (N195.07 billion | 2022FY: N8.05 billion) influenced a 10.0x y/y increase in finance cost. Additionally, interest expense on financial liabilities surged by 203.0 percent y/y, majorly attributed to the revaluation of its foreign-denominated loans (N402.32 billion | 2022FY: N155.30 billion).

“NESTLE experienced a complete depletion of its net operating gains due to its foreign exchange exposure in loans and borrowings in the period. Amid a still challenging operating environment, we anticipate that the company will maintain its efforts to protect margins in 2024E by potentially raising prices further, leveraging its strong market leadership. Additionally, strategies such as branding, product innovation, and enhancing route-to-market channels are expected to contribute to revenue growth. However, challenges stemming from the FX illiquidity and naira devaluation will likely pressure the company’s profitability. YTD, NESTLE is down -10.0%, compared to the Consumer Goods index (+46.8%) and the broader All-Share index (+34.5%),” Cordros Securities said in a report