Nestle Nigeria suffers earnings slump as unfavourable FX translation takes its toll

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Nestle Nigeria Plc, on Wednesday reported its full-year results for the period ending December 2016, which showed net profit decline by 67% to N7.9bn, down from N23.7bn in 2015.

The chocolate drinks and coffee maker blamed the drop in profit on a combination of the impact of Naira devaluation which caused the company’s net finance cost to skyrocket to N16.7bn, from N4.4bn in the previous year and the effect of the expiration of its pioneer “tax” status.

On the effect of naira devaluation on profits, Nestle has outstanding foreign currency (dollar) denominated loans which created an exchange rate loss when the naira was devalued on 20th June 2016.

The company notes that its net income was also affected by the expiration of the pioneer status, which placed the firm on a higher income tax provision. Nestle paid N13.6bn on income tax in 2016 as against N5.6bn in the previous year.

In addition, the company saw a 21% rise in cost of sales in the period under review to N107bn, up from N84bn. The jump is attributed to higher raw materials cost caused by inflation from the currency devaluation.

Despite the macroeconomic challenges, the company said it grew revenue 20% to N182bn, from N151.2bn in 2015 signifying that the company’s brands continue to enjoy strong patronage.

Looking forward, Nestle said its board and management remained optimistic about the long term potential of the business despite the current difficult macroeconomic environment. It added that it would continue to increase investment in the key brands and route-to-market activities while proactively managing input cost pressures.