Nestlé Nigeria loses profit as finance expenses jump 126% to over N5bn in Q1

Nestle Nigeria Plc faced intensified pressure from rising debts and interest expenses in the first quarter (Q1), which lowered the company’s after-tax profit from almost N18 billion in the same period last year to N16.2 billion for the quarter.

Nestlé’s interim financial report for Q1 ended March 2023, shows that interest-bearing debts have continued swelling from less than N77 billion in 2021 to over N155 billion at the end of 2022 and further to the region of N173 billion at the end of the quarter.

With rising debt, finance expenses jumped by 125.9 percent quarter-on-quarter to N5.3 billion in Q1, while finance income dropped by 58.3 percent to N1.6 billion over the same period.

The adverse movements in finance cost and income resulted in an adverse shift from net finance income of N1.4 billion to net finance cost of N3.7 billion over the period — which directly accounted for the company’s loss of profit in the quarter.

Cost of finance was one of the two major cost increases that squeezed the company’s profit margin and slowed down profit growth last year at an increase of 70 percent to N20.5 billion. A change of position from a strong growth in finance income last year to a big drop in Q1 has added to the pressure on the bottom line.

The food and beverages company sustained loss of profit margin all the way in 2022 from 16.3 percent in Q1 to 10.9 percent at full year.  With intensified pressure from finance expenses this year so far, profit margin is further down from 16.3 percent to 12.6 percent over the review period.

The second major expense line that pressured the company’s earnings in Q1 was marketing and distribution cost — which grew more than twice ahead of sales revenue at 35.9 percent to N19.3 billion at the end of the quarter.

Sales revenue grew by 16.1 percent quarter-on-quarter to almost N128 billion at the end of Q1, slowing down from an outstanding increase of 27 percent for the 2022 full year.

The company saw a moderated behaviour of cost of sales in Q1, changing position from consuming sales revenue last year, to saving cost in the current year. At N76.3 billion, cost of sales grew by 13.9 percent in Q1 and claimed a reduced share of turnover at 59.6 percent compared to 60.8 percent in the same period in 2022.

The slowdown in input cost strengthened gross profit — which grew ahead of sales at 19.5 percent to close at N51.6 billion at the end of March 2023. This represents an increase of N8.4 billion in gross profit, much of which was however claimed by the incursion from marketing and distribution cost.

The incursion weakened operating profit, which improved by 8.5 percent or N2.2 billion to stand at N28.6 billion at the end of the period.

The high jump in net finance cost consumed more than all the increase in operating profit and lowered pre-tax profit from N27.8 billion in the same period last year to N24.9 billion at the end of the first quarter.

Cash flow pressure facing the company is intensifying in the year, as receivables grew and payables dropped, and net cash used in operating activities jumped from N10 billion in Q1, last year, to N24.9 billion in Q1 of the current financial year. New loans, therefore, had to be raised to finance the company’s operations through the period.