NESTLE Reports Q2-23 Losses Due to Surge in Net Finance Costs Amid Naira Devaluation

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NESTLE, one of Nigeria’s leading food and beverage companies, published its unaudited financial results for Q2-23 on Friday (28 July), revealing a significant downturn in earnings. The company reported a standalone loss per share of NGN74.04, compared to earnings per share of NGN12.33 in Q2-22. Consequently, the H1-23 loss per share amounted to NGN63.06, as opposed to earnings per share of NGN35.01 in H1-22. The decline in earnings is primarily attributed to the surge in net finance costs, which amounted to NGN121.69 billion in Q2-23, a substantial increase from NGN4.60 billion in Q2-22.

Despite the challenging financial performance, NESTLE’s revenue demonstrated resilience, increasing by 19.2% YoY in Q2-23, with growth observed across the Food and Beverage business segments. The Food segment recorded a growth of 28.3% YoY, while the Beverage segment saw a growth of 6.1% YoY. Both pricing improvements and increased volumes contributed to the revenue growth, with average prices in the Food and Beverage segments rising by approximately 12.5% and 6.5%, respectively. Sequentially, revenue showed a solid 4.6% QoQ growth, highlighting the company’s ability to maintain performance despite challenges.

Remarkably, NESTLE managed to expand its gross margin by 868 basis points YoY to 41.6%, the highest print since Q2-20 (41.3%), as revenue growth outpaced slightly higher costs of sales.

Additionally, the company’s Earnings Before Interest and Taxes (EBIT) and Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) margins improved significantly to 24.0% and 26.1%, respectively, due to a 16.6% YoY decline in operating expenses.

However, the substantial surge in net finance costs, amounting to NGN118.66 billion in Q2-23, compared to NGN3.89 billion in Q2-22, triggered a pre-tax loss of NGN86.22 billion for NESTLE (versus a profit before tax of NGN15.89 billion in Q2-22). Consequently, the company recorded a post-tax loss of NGN58.69 billion (compared to a profit after tax of NGN9.77 billion in Q2-22), with an income tax credit of NGN27.83 billion.

The company’s financial performance in Q2-23 highlights the impact of the naira devaluation, resulting in higher finance costs and significant losses. Despite the challenges, analysts expect NESTLE’s stable and robust business, coupled with its diverse product portfolio, to sustain consistent operating performance in the medium term. However, it is anticipated that the company’s earnings will continue to be negatively affected by the recent devaluation of the naira throughout 2023. Further estimates are under review to assess the company’s outlook in light of these market conditions.

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