Nestlé’s robust N351.8bn revenue snagged by elevated finance cost

BY: CHARLES ABUEDE

Nestle Nigeria, a leading non-alcoholic beverage manufacturer, has seen its robust performance marred by 200 percent elevated financing costs to N2 billion in 2021.

According to the audited financial statement for the full year ended December 2021, the increase was offset by the higher finance costs that rose 2.7x to N12.1 billion. The increase in finance cost was primarily due to a rise in interest expense paid on the financial liability of N7.3 billion compared to N2.7 billion paid in 2020, plus a net foreign exchange loss of N4.7 billion in 2021.

The company in its full-year filing to the Stock Exchange noted that net profit grew to N40 billion while its operating income grew 11.7 percent to N72 billion. Similarly, there was revenue growth of 22.6 percent to N351.8 billion in its operations from sales to customers, which was primarily driven by a 21.3 percent increase in the food segment to N208.2 billion, supported by a jump in the beverage segment to N143.6 billion.

However, this robust performance has prompted the board to propose a final dividend of N25.50 per share, subject to appropriate withholding tax and approval by shareholders. It comes in addition to the interim dividend of N25 per share, bringing total dividend for the year to N50.50 per share.

Looking into the geographical front, Nestle Nigeria’s revenue growth was driven by an increase in domestic revenue to N346.6 billion and a 19.9 percent growth in exports to N5.3 billion. But it also came with the company’s cost of sales jumping more than revenues at 31 percent, a majority of the increase coming from an increase in raw materials and consumables cost to N163.7 billion in 2021 from N124.8 billion last year, which subsequently resulted in a 405 basis points gross margin contraction to 37.5 percent in 2021 compared to 41.5 percent in 2020.

Even though there was a strong 22.6 percent year on year growth in revenue, the 31 percent increase in the cost of sales and a significant increase in the finance costs led to the deterioration of the net profit margin by 228 basis points to 11.4 percent in the review year.

Meanwhile, the company’s earnings per share jumped to N50.51 per share in 2021 from N49.47 per share in the previous year. Also, the beverage segment recorded a 13.8 percent growth in operating profit to N28.3 billion in 2021, while the food segment’s operating profit grew 10.4 percent to N43.7 billion.

From a deeper assessment of the margins, there was a decline across board in the review year by 229 basis points to 22.8 percent due to the increased cost of sales and marketing and distribution expenses. The operating and net margin collapsed by 198 basis points and 228 basis points to 20.5 percent and 11.4 percent, in that order. The gross margin declined 405 basis points to 37.5 percent in 2021 while the operating margin and the EBITDA margins also experienced a dip of 198 basis points and 229 basis points, respectively.

A review of the company’s quarterly performance analysis shows that the revenue in the fourth quarter of 2021 increased 21.4 percent year on year to N90.2 billion. A proportional increase in the cost of sales to N59.7 billion in the review period eroded the increase in revenue. Along with the rise in the cost of sales, an increase in the finance cost to N6.3 billion in the final three months of 2021 contributed to the decline in the net profit to N6.4 billion in the same period. And as a result, all the margins also dropped significantly on a year on year basis, with a decrease in gross margin of 540 basis points and a 263 basis points decrease in net profit margin.