Nestlé Nigeria cuts loss to N43bn in Q3 amidst mounting exchange setback

Nestlé Nigeria Plc has trimmed its loss position to N43 billion at the end of the third quarter from roughly N50 billion at half year.

The improvement follows a profit of N6.9 billion the company posted in its third quarter operations, swinging up from a net loss of N58.7 billion incurred in the second quarter but yet down from a corresponding profit of N12.4 billion last year.

The unaudited financial report of the food and beverages producing company for the third quarter ended September 2023 shows that it is yet under pressure from foreign exchange losses that grew further from N123.8 billion at half year to N127.5 billion at the end of the third quarter.

A slowdown in foreign exchange losses combined with a step up in sales revenue to return the company to profit in the third quarter. Turnover stepped up from 19.2 percent growth in the second quarter to 21.4 percent to N134.8 billion for the third quarter.

Production cost slowed down at an increase of 10.9 percent to less than N82 billion for the quarter, which powered an increase of 42.5 percent in gross profit to N52.8 billion for the three months of trading.

The company also saved cost from marketing/distribution and administrative expenses, which enabled an impressive growth of 64.7 percent in operating profit to N30.8 billion for the third quarter.

Finance expenses, driven by foreign exchange losses, jumped nine times to N18.8 billion in the quarter and claimed more than all the gains in operating profit.

Added to that is an upsurge of 147.8 percent jump in tax expenses to N5.6 billion for the quarter, which slashed a pre-tax profit of N12.4 billion for the quarter to a net profit of N6.9 billion.

Nestle Nigeria’s year to date numbers show a turnover of N396.6 billion at the end of September 2023, which is an improvement of 18.9 percent.

The gain in sales is supported by a slowdown in production cost – which grew by 9.4 percent – one half the increase in sales. The cost saving spurred an increase of 36.6 percent in gross profit over the period to N160.2 billion.

Pressure however mounted from marketing and distribution cost – which grew only slightly below sales revenue at 35.7 percent to N236.4 billion at the end of the third quarter.

This is however a significant slowdown from a rise of over 42 percent in marketing and distribution cost at half year and from more than two and a third times faster growth than sales revenue at the end of June 2023.

With a moderated increase in administrative expenses at N9.7 billion, operating profit rose by 41.2 percent to N91.6 billion at the end of the third quarter.

A lot of strength was gained from finance income, which jumped more than three times year-on-year to N8.3 billion at the end of September 2023.

However, all the operating profit and the finance income emptied into the deep hole of N156.5 billion finance cost, more than 17 times the finance expense of N9 billion in the same period last year.

The increase in finance cost created a pre-tax loss of N56.7 billion at the end of the third quarter against a pre-tax profit of N58.4 billion in the same period in 2022.

An income tax credit of N13.6 billion was recorded, which lowered the net loss figure to N43 billion for Nestle Nigeria at the end of the third quarter.

The loss has wiped out the company’s equity resources with a retained deficit of N42.2 billion creating negative shareholders’ funds of N41.7 billion at the end of the third quarter.

Apart from foreign exchange losses, finance cost has presented a major pressure on earnings so far this year. Rising finance expenses have followed rising debts – which led to falling profit right from the first quarter.

Nestlé’s interest bearing debts have expanded from about N155 billion at the end of 2022 to N320.4 billion at the end of the third quarter.