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NESTLE NIGERIA PLC FY'23 EARNINGS - Naira volatility upturns operational profits

 

Price jump combats volume decline
Nestle Nigeria showcased remarkable resilience in Q4'23, achieving a substantial 33% y/y growth in revenue, totaling ₦150.5 billion. The company’s two product segments recorded growth in Q4’23. Food was ₦99.3 billion (+38.5% y/y) while Beverage was ₦51.2 billion (+23.1% y/y). Also, Nestle’s cost of sales grew at a slower pace, +25% y/y to ₦93.5 billion in Q4’23. Thus, gross profit grew by 48% y/y in Q4’23 to ₦57 billion, pushing gross margin to 38% (Q4’22: 34%). For FY’23, revenue rose to ₦547.1 billion (+22% y/y) while gross profit was ₦217.1 billion, up 39% y/y.

Other business costs injure bottomline
Nestle was unable to replicate its cost managing techniques further down its books. First, operational expenses (OPEX) grew by 60% in Q4’23 to ₦25.3 billion; thus, operating profit grew slower than gross profit. Operating profit came in at ₦32.2 billion, up 43% y/y.
Also, finance costs reached new highs due to the volatility of the local currency and interest rates that have remained elevated. In Q4’23, FX losses grew to ₦67.6 billion (Q4’22: ₦6.8 billion), while interest cost grew to ₦9.4 billion (Q4’22: ₦5.3 billion). In addition, finance income fell by 28.5% to ₦2.0 billion. All in, Net finance expenses surged 8x in Q4'23, reaching ₦79.6 billion, impacting the overall profit dynamics.

Outlook
Nestle’s advantage of easy access to capital via its parent company is also the source of its balance sheet woes. Given that the company will have to refinance its outstanding dollar balances till it can eke cash from operations to cover them, we expect finance costs to remain elevated in the near term. However, we expect a continued impressive topline performance. 
For FY’24, we project a revenue of ₦656.5 billion (+20% y/y) and a bottomline of ₦43.8 billion loss (FY’23: ₦79.5 billion loss). Thus, we maintain our HOLD rating on the stock.