Nestlé’s rising costs break Q2 turnover

Nestle Nigeria Plc lost the impressive momentum on the profit trail that enabled a net jump of 45% in profits to N18 billion in the first quarter. Two major cost increases halted momentum in the second quarter, reducing the quarter’s after-tax profit to N9.8 billion.

The agribusiness company’s initially bright full-year outlook has therefore shifted from the first profit surge in three years to moderate growth in 2022. 2020.

Nestlé’s interim financial report for the six months ended June 2022 shows sales remain on target, with the strongest top line growth in several years expected this year. However, rising costs manifested themselves in the second quarter and limited the conversion of sales gains into profit.

The company generated revenue of N112 billion in the second quarter, up slightly from N110 billion in the first quarter. The growth rate accelerated from 26% quarter-on-quarter in the first quarter to over 33% in the second quarter.

Two major cost increases claimed a large portion of the sales gain, namely cost of sales and financial expense. Cost of sales rose 43.4% in the second quarter to more than 75 billion naira, ahead of the 33% increase in sales. This means that out of the N28 billion increase in revenue during the quarter, the cost of sales claimed up to N23 billion.

This deviated from the subdued behavior of the cost of sales in the first quarter at 67 billion naira and a much slower growth of 27.6%. The gross profit margin fell from 37.6% in the same quarter last year to less than 33% in the second quarter of 2022.

The second cost item for the company that topped its revs in the second quarter was the cost of finance, which jumped 134.6% quarter-on-quarter to N4.6 billion. The increase took the company’s position from a net finance income of N1.4 billion in the first quarter to a net finance charge of N3.9 billion in the second.

Meanwhile, the company’s strong financial revenue of 3.8 billion naira in the first quarter fell to 705 million naira in the second quarter.

Cost increases reduced the profit margin from 16.3% in the first quarter and from 11% in the same period last year to 8.7% in the second quarter.

Nestlé’s half-year result is therefore a dilution of a solid first quarter by a weak second quarter. The strength of the first quarter was only maintained thanks to revenue, which rose from 26% in the first quarter to almost 30% year-on-year to close at N222.4 billion at the end of June 2022.

This remains the company’s highest revenue improvement record in at least six years. It accelerates 22.6% revenue growth to N352 billion in 2021.

Cost of sales rose 35.5% to more than N142 billion in the half, which moderated gross profit margin to 36%. Gross profit improved by 20.7% to N80 billion over the period.

A moderate 20.7% increase in marketing and distribution expenses and a 14% decline in administrative expenses helped support operating profit, which rose 27% to more than N46 billion in the half. .

The company maintains a good front on financial revenue, which stood at 4.5 billion naira in the half-year, compared to 445 million naira in the same period of 2021. It is already more than double the less than 2 billion financial revenues that the company recorded in 2021. full year.

However, finance costs more than doubled to 105% to around N7 billion from a 65% increase in the first quarter. The accumulation resulted in a net financial cost of N2.4 billion for the six months of trading. The figure nevertheless represents a 17% drop from the net finance cost of around N3 billion in the same period last year.

Nestlé closed half-year trading with an after-tax profit of N27.7 billion, a 27.7% year-on-year improvement. This still keeps the company on track for the first reasonable profit improvement in three years.

The profit margin is however down from 16.3% in the first quarter to 12.5% ​​in the half.

The increase in financial charges reflects the increasing liabilities on the company’s balance sheet. From 77 billion naira at the end of 2021, interest-bearing debts increased to around 84 billion naira at the end of the first quarter and increased further to reach the region of 93 billion naira in the half-year.

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