Nestle Nigeria reports robust operating performance, magnified by net foreign exchange gain in 1Q22

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May 5, 2022/FSDH Research

Key Performance Highlights:

  • Nestle Nigeria reported strong revenue growth of 26.3% YoY to N110.2 billion in 1Q22. The outperformance was driven by a strong showing across both the segments as each grew 26.3% YoY. The food segment (60.0% of 1Q22 revenue) clocked N66.1 billion, while the Beverage segment (40.0% of 1Q22 revenue) recorded N44.1 billion in 1Q22. On the geography front, the revenue growth was driven by a 26.1% YoY increase in domestic revenue to N108.2 billion, coupled with a 41.7% growth in exports to N2.0 billion in 1Q22. The company’s cost of sales jumped more than revenues at 27.5% YoY to N67.0 billion in 1Q22 from N52.5 billion in 1Q21, resulting in a 58 bps gross margin contraction to 39.2% in 1Q22 compared to 39.8% in 1Q21. The net profit soared 45.0% YoY to N18.0 billion in 1Q22 versus N12.4 billion in 1Q21.
  • The company’s marketing and distribution expenses spurted 28.0% YoY to N14.2 billion in 1Q22, while the administrative expenses declined by 21.2% YoY to N2.6 billion in 1Q22. The operating income shot up 30.0% YoY to N26.4 billion. The finance income ballooned 30.9x YoY to N3.8 billion, partially offset by a 64.9% YoY jump in finance cost. The increase in finance income was primarily due to a 90.6x YoY rise in net foreign exchange gain to N2.8 billion in 1Q22, supported by a 991.7% YoY rise in interest income on bank deposits. Resultantly, net profit charged 45.0% YoY higher to N18.0 billion in 1Q22. The company’s earnings per share soared 45.0% YoY to N22.68 per share in 1Q22 from N15.64 per share in 1Q21.
  • The company’s gross margin declined 58 bps YoY to 39.2% in 1Q22, as the cost of sales rose higher than revenues. The operating margin and the EBITDA margins climbed by 42 bps and 67 bps, respectively. The net profit margin also vaulted 210 bps to 16.3% in 1Q22, owing to higher finance income. The Beverage segment recorded a 44.0% YoY growth in operating profit to N10.8 billion in 1Q22, while the Food segment’s operating profit ascended by 21.7% YoY to N15.6 billion in 1Q22.
  • On a sequential basis, the revenue in 1Q22 jumped 22.2% QoQ to N110.2 billion, partially offset by a 12.2% QoQ rise in the cost of sales to N67.0 billion in 1Q22. Finance income rose 383.4% QoQ to N3.8 billion, coupled with a 62.7% QoQ decline in the finance cost to N2.4 billion in 1Q22, which led to a 178.6% QoQ appreciation in the net profit to N18.0 billion in 1Q22. Consequently, all the margins have soared significantly on a QoQ basis.
  • On April 7, Nestle Nigeria announced the appointment of its Finance and Control Director, Mr. Jagdish Singla, as the Finance Director of Cereal Partners Worldwide (CPW) for Zone Asia, Oceania, Africa, effective June 1, 2022. To replace Mr. Singla as the Finance and Control Director of the Company, effective June 1, 2022, is Mr. Sarmad Saleem, Regional Head of Decision Support in Nestlé Central and West Africa Region (CWAR).

Market Reaction: Investor reaction to the solid 1Q22 results was muted as the stock closed unchanged at N1440 versus a 0.98% gain in the All-Share Index (4/5).

Nestle Nigeria Earnings Highlight 1Q22

Source: Company Financials, FSDH

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