March 2, 2023/FSDH Research

FSDH Initial Reaction: Nestle Nigeria FY22 results 
Kindly click here to download the report.

Key Performance Highlights:

• Nestle Nigeria reported strong revenue growth of 27.0% YoY to N446.8 billion in FY22. The revenue growth was primarily driven by a 30.6% YoY growth in the Food segment to N272.0 billion, supported by a 21.8% YoY jump in the Beverage segment to N174.8 billion. On the geography front, the revenue growth was driven by a 28.0% YoY increase in domestic revenue to N443.4 billion, while exports declined 35.5% YoY to N3.4 billion in FY22. The company’s cost of sales jumped more than revenues at 32.3% YoY, with a majority of the increase coming from higher raw materials and consumables cost to N223.7 billion in FY22 from N163.7 billion in FY21, resulting in a 261 bps gross margin contraction to 34.9% in FY22 compared to 37.5% in FY21. The net profit vaulted by 22.3% YoY to N49.0 billion. It is worth noting that the company’s solid revenue growth was impacted by the higher cost of sales and a significant increase in finance costs. Consequently, Nestle Nigeria’s net profit margin came in at 11.0% in FY22, a marginal 42 bps decline (FY21: 11.4%).
   
• The company’s marketing and distribution expenses increased 19.2% YoY to N57.3 billion in FY21, while the administrative expenses were flat at N11.5 billion in FY22. In FY22, the company’s impairment of financial assets declined to N29.0 million compared to N278.3 million in FY21. Ultimately, the operating income grew 20.7% YoY to N86.9 billion in FY22. The company experienced a rise in its finance income by 140.4% YoY to N4.8 billion in FY22. However, this increase was more than offset by the higher finance costs that rose 70.0% YoY to N20.5 billion (FY21: N12.1 billion). The increase in finance cost was primarily due to a rise in interest expense paid on the financial liability of N12.7 billion in FY22, compared to N7.3 billion paid in FY21, plus a net foreign exchange loss of N7.9 billion in FY22. Nestle Nigeria’s net profit grew 22.3% YoY to N49.0 billion in FY21. Likewise, the company’s earnings per share jumped 22.3% YoY to N61.77 per share in FY22 from N50.51 per share in FY21.
   
• Looking at margins, the company’s margins declined across the board in FY22. The company’s EBITDA margin declined 122 bps YoY to 21.6% due to the increased cost of sales and marketing and distribution expenses. The operating and net margin slumped 101 bps and 42 bps YoY to 19.4% and 11.0%, respectively, while the gross margin declined 261 bps YoY to 34.9% in FY22. The Food segment recorded a 23.5% YoY growth in operating profit to N54.0 billion in FY22, while the Beverage segment’s operating profit grew 16.5% YoY to N32.9 billion.
   
• In a quarterly performance, the revenue in 4Q22 surged 25.6% YoY to N113.4 billion, while the cost of sales grew by 25.4% YoY to N74.9 billion in 4Q22. Despite the marketing and distribution expenses increasing 11.8% YoY to N14.0 billion and finance costs jumping 80.7% to N11.5 billion in 4Q22, the company reported a net profit of 36.6% YoY to N8.8 billion in 4Q22. Moreover, the company’s margins witnessed improvement in 4Q22, with the operating margin expanding by 184 bps, the EBITDA margin expanding by 179 bps, and the net margin growing by 62 bps.
   
• On 24 February 2023, Nestle Nigeria proposed a final dividend of N36.50 per share, subject to appropriate withholding tax and shareholder approval. The final dividend will become payable on 18 May 2023 to all shareholders registered in the company’s books at the close of business on Friday, 21 April 2022. This proposed dividend is in addition to the interim dividend of N25.00 per share that was paid in December 2022, and if approved, the total dividend paid for FY22 will be N61.50 per share (FY21: N50.50 per share).

Market Reaction: Investor’s reaction to the solid FY22 results was muted as the stock closed unchanged at N1,080.30 versus a 0.86% gain for the All-Share Index (28/2). Moreover, the stock closed flat at N1,080.30 versus a 0.53% loss for the All-Share Index on 1/3.

Nestle Nigeria Earnings Highlight FY22