Nestle Nigeria Higher Operating Expenses Weighs On Profitability

Must Read

List of United Bank for Africa (UBA) Sort Codes & Branches (with addresses) in Nigeria

The sort code is a number that usually identifies both the bank and the branch where an account is held. The sort...

How To Block Your Bank Account And SIM Card In Case Of Emergency

Losing your phone and wallet or having them stolen can be very frustrating. However, in case that happens to...

List of Access Bank Sort Codes & Branches (with addresses) in Nigeria

The sort code is a number which usually identifies both the bank and the branch where an account is...
- Advertisement -

Nestle Nigeria Plc reported a 1% decline in revenue in its Q1 2020 result. While gross profit grew YoY by 1% due to a lower production cost, operating profit decreased by 8% because of a higher operating expense. Profit before tax (PBT) declined by 9% while profit after tax (PAT) decreased by 13%. EPS for the period stood at N14.12k (Q1 2019: N16.21k).

Revenue declines, but lower production cost lifts gross profit

The group’s revenue declined mildly from N70.97bn to N70.33bn in Q1 2020. The flat revenue in Q1 2020 was primarily due to the decline in revenue from the food segment. Revenue from the food segment declined YoY by 9% to N41.49bn in Q1 2020. While revenue from the beverage segment increased YoY by 13% to N28.84bn, the decline in the food segment (which accounted for 59% of the group’s total revenue) offset the growth in the beverage segment.

Similarly, cost of sales declined YoY by 2% from N39.50bn to N38.67bn in Q1 2020 as the group continue to gain traction with the sourcing of material locally. As a result, gross profit grew from N31.47bn to N31.66bn in Q1 2020, and gross profit margin strengthened by 70bps to 45%.

- Advertisement -

Operating cost dampens operating profit

Operating cost spiked YoY by 14% eroding the gains of a lower production cost due to a 53% increase in administrative expenses. Administrative grew from N2.01bn to N3.08bn in Q1 2020. Also, marketing and distribution expenses rose by 7% from N10.37bn to N11.04bn in Q1 2020. On the weight of higher operating expenses, operating profit declined YoY by 8% from N19.09bn to N17.54bn in Q1 2020.

Read Also:  Nestlé: more women in the workplace make business sense

Net finance cost drags bottom-line

PBT declined by 9% from N19.12bn to N17.46bn in Q1 2020 due to the incurrence of a net finance cost by the group. Net finance cost for the period was N82.69bn against net finance income of N34.65bn in Q1 2019. PAT stood at N11.20bn, a 13% decrease from N12.85bn in Q1 2019.

- Advertisement -

Nestle Nigeria Higher Operating Expenses Weighs On Profitability - Brand Spur

Recommendation

We note the revenue decline in the food segment of the business, but not the cause for the decrease due to limited disclosure. However, we pointed out that the group deleveraged its balance sheet during the period by paying down on its borrowings (foreign as well as domestic loans). Long term borrowings of N5.52bn in FY 2019 was fully paid-off. Also, short term borrowings of N4.96bn as of December 2019 has reduced to N158.52mn in Q1 2020. We believe that the resultant cost savings will provide respite for the group in subsequent periods.

Read Also:  Rotary Honours Airtel for Service to Humanity

We have a revised forward EPS of N58.11k (FY 2019 estimate: N62.40k) on the stock and a fair value estimate of N1,066.39k. At the market price of N1,000.00k, the stock is trading at 7% discount to our fair value estimate. Thus, we recommend a HOLD.

- Advertisement -
Nestle Nigeria Higher Operating Expenses Weighs On Profitability - Brand SpurNestle Nigeria Higher Operating Expenses Weighs On Profitability - Brand Spur

Subscribe to BrandSpur Ng

Subscribe for latest updates. Signup to best of brands and business news, informed analysis and opinions among others that can propel you, your business or brand to greater heights.

- Advertisement -

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Nestle Nigeria Higher Operating Expenses Weighs On Profitability - Brand SpurNestle Nigeria Higher Operating Expenses Weighs On Profitability - Brand Spur

Latest News

Was minimum wage in Nigeria actually increased?

In April 2019, President Muhammadu Buhari signed the new minimum wage bill into law amid rising living costs and...

5 foreign TV series that would increase your strategic thinking mindset

Watching movies serves as a form of entertainment and also a means by which people get educated more about human behaviour, strategy pop culture...

May and Baker Launches Malact to Combat Malaria

May & Baker Nigeria Plc, a local pharmaceutical company, has introduced a new anti-malarial drug to treat malaria in the country. The new drug,...

May & Baker Nigeria appoints new Executive and Managing Director as Nnamdi Nathan Okafor takes a bow

Sequel to the Board Meeting of May & Baker Nigeria Plc held on Thursday, 26th November 2020 at the Muson Centre, Onikan, Lagos, the...

Household Consumption Expenditure Contracts By -0.08% in Q2 2020 – NBS

In the first quarter of 2020, Nigeria's real GDP at basic prices grew by 1.87% but declined in the second quarter by -6.10% on a...
- Advertisement -
BrandsPur Weekly Cartoons
- Advertisement -Nestle Nigeria Higher Operating Expenses Weighs On Profitability - Brand SpurNestle Nigeria Higher Operating Expenses Weighs On Profitability - Brand Spur