Nestle Nigeria Plc Revenues Sustained By Growth in the Beverage Business Segment

Nestle ups shareholding in Nigerian unit, acquires additional 105,000 shares

Nestlé Nigeria Plc. recorded modest year-on-year revenue growth of 1.1% to ₦287.1 billion in FY-2020 from ₦284.0 billion in FY-2019.

This uptick was supported by sustained growth in its beverage products business segment, which grew by 6.9% year-on-year to ₦115.4 billion, compensating for the decline in the food business segment, which was down 2.5% year-on-year to ₦171.4 billion.

The company’s beverage business segment continues to be supported by growth in sales of brands like Milo, Nescafe and Nestlé Pure Life, its water brand. Despite recent price increases, the company’s brands remain largely favoured among consumers.

Nestle ups shareholding in Nigerian unit, acquires additional 105,000 shares

This could also be attributed to other competitors raising prices in line with the broader market, limiting the downtrading impact.

Also, despite the decline in growth during FY-2020, the food business segment remains competitive, especially in the bouillon cubes and infant food businesses.

Supply chain disruptions weigh on raw material cost

In FY-2020, the cost of sales increased to ₦167.9 billion, up 7.7% year-on-year from ₦155.9 billion in FY-2019.

This augmentation in cost of sales was underpinned by a sharp increase in the costs of raw materials which grew abruptly by 12.7% year on year, a consequence of supply chain disruptions in the local market where Nestlé purchases a significant portion of its raw materials.

The company saw prices of essential inputs (maize, wheat, cassava and sugar) rise during the year. Consequently, gross profit shrunk to ₦119.2 billion in FY-2020 from ₦128.1 billion in FY2019, a decline of 7.0% year-on-year.

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Operating expenses under control

In FY-2020, Nestlé Nigeria reported a 2.3% year-on-year decline in its operating expenses to ₦55.8 billion from ₦56.1 billion in FY-2019. This is largely attributable to the organization’s deliberate attempts to curtail costs amidst inflationary- and Covid-19-induced pressures.

The downtick in operating expenses was driven by lower marketing & distribution expenses, which was down 4.8% year-on-year, a consequence of decreased spending on sales promotion and advertising.

However, the decline in operating expenses was insufficient in precluding a weakened operating profit, as it fell by 10.6% year-on-year to ₦64.4bn in FY-2020.

Increase in long-term debt weighs on profitability

Nestlé Nigeria acquired new debt from its parent company, Nestlé S.A. A facility of $100 million was approved for the organization, out of which $71.2 million has been drawn. The new facility, with a 7-year tenor, will carry an interest rate of LIBOR+11.34%.

Consequently, Nestlé’s total interest-bearing liabilities increased significantly to ₦41 billion in FY-2020, a sharp increase of 210.4% year-on-year. This fed into higher finance costs in FY-2020 (₦4.4 billion), an increase of 95.3% year-on-year. Conversely, finance income contracted to ₦647 million in FY-2020, a year-on-year decline of 51.3%, despite stronger cash generation.

Consequently, net interest expense increased sharply by 302.9% year-on-year to ₦3.8 billion during the review period. This resulted in decreased profitability, as pre-tax and net incomes declined by 14.7% year-on-year and 14.2% year-on-year to ₦60.6 billion and ₦39.2 billion in FY-2020, respectively.