Pandemic takes good slice off Nestle Nigeria as profit down 14% to N39.21bn

By Charles Abuede

• Full-year revenue up 1%y/y to N287.08bn from N284.04bn
• PBT dips 15% y/y to N60.64 from N71.12bn

Nestle Nigeria, a leading consumer goods manufacturer in Nigeria, continues to report stable top-line numbers while its profit takes a beating due to the negative impact of the pandemic. The company reported a 1.1 per cent year on year revenue growth in full-year 2020 to N287.08 billion on the back of a marginal 0.7 per cent year on year rise in the third quarter 2020 revenues, while the company’s net profit continued to decline in double digits by -14 per cent. The tumbling performance of the company can be ascribed to the adverse effect from the high inflationary pressure, increased excise duty, value-added tax, and the coronavirus pandemic.

Nestle, in its recently released full-year 2020 audited financial statement filed to the local bourse, revealed that its revenue growth was driven by a 6.9 per cent jump in beverage revenues to N115.4 billion, and this was slightly offset by a 2.5 per cent fall in food revenue in 2020. The food segment had been underperforming until the third quarter of 2020 turned the corner in Q4 2020. Though, the food revenues shot up 9.2 per cent year on year to N48.3 billion, offsetting the 8.4 per cent year on year fall in beverage revenue in the final three months of 2020.

Also, the profit before tax for both segments of its product line declined in the full year 2020. Food segment profit slipped 15.8 per cent year on year to N39.6 billion, while the beverage segment profit edged 0.8 per cent lower to N24.8 billion in the year under review.

Meanwhile, the operating and net margin slumped 293 basis points year on year and 242 basis points to 22.4 per cent and 13.7 per cent, respectively, in 2020. Consequently, the net profit was kneecapped by 14.2 per cent year on year to N39.2 billion in the same period. However, due to the disproportionate 12.7 per cent rise to N124.8 billion in the cost of raw materials, Nestle’s cost of sales jumped 7.7 per cent year on year, resulting in a gross margin contraction of 359 basis points to 41.5 per cent in 2020.

Still looking into the company’s cost, Nestle continues to manage its marketing and distribution expenses shrewdly, slashing the cost by 4.8 per cent year on year to N43.8 billion in 2020, but administrative expenses climbed 9.4 per cent year on year to N10.9 billion in the year. It experienced a double whammy below the operating line as its finance income declined 51.3 per cent year on year to N647 million, while its finance cost twirled 95.3 per cent year on year to N4.4 billion in 2020. The increase in finance cost was primarily due to a multifold increase in foreign exchange losses to N1.7 billion from N37.3 million in the preceding year.

Meanwhile, staying on the margins, the company’s margins were hit hard during the year due to the global pandemic. Thus, the company’s EBITDA fell 9.2 per cent year on year to N72.2 billion, resulting in a 286 basis points year on year downhill climb in the EBITDA margin to 25.1 per cent in the full year 2020. Likewise, the company’s earnings per share slipped 14.2 per cent year on year to N49.47 per share in 2020.

The company declared a total dividend of N70 per share in 2020 as against the N63.50 per share declared in 2019. And looking at the balance sheet, the company’s loans jumped to N40.2 billion, from a paltry N10.5 billion in the prior year, as the company raised N33.8 billion in loan from the related party in 2020.